DiscussMoney.Info

Generally speaking there are two main directions of the stock (or any other market) – up or down. When the market goes up – it generally climb slow and cautiously – so this situation is called a Bullish market – cause the bull is associated with a slow advance. While when the market fall – it generally fall really fast like a furious bear – and so the falling market is called a bearish market. It may seems like just a terms – and in fact it’s really just a terms, but the ability to recognize a bullish or a bearish trend even a bit before the rest may credit you with millions, while failing to do so may bring losses of the very same millions.

Good luck with identification of the market trends!

Had a very busy week – examinations.. Hopefully now I will have more time for my site.

Now I want to write about prospect theory. A few weeks ago I had a conversation when I tried to explain what is a “prospect theory” – I have noticed that while the ideas behind the theory are very simple – it wasn’t easy for me to explain it.  Not purposelessly the developers of the theory – Daniel Kahneman and Amos Tversky won a noble price for its’ invention.

Here is how the “collective wisdom” (wikipedia) define prospect theory: “Prospect theory is a theory that describes decisions between alternatives that involve risk, i.e. alternatives with uncertain outcomes, where the probabilities are known”. In my opinion the beauty  of the Prospect theory – is that with really simple problems it describes deep and robust paradoxes of human behavior. Read more…

A while ago I have wrote about the VIX Index and LIBOR index. Today I would like to write about the TED spread measurement.  TED spread calculates the difference between the LIBOR (interest rates on interbank loans) and the Short term USA government bonds. The TED as the LIBOR index indicates the market fear of banks bankruptcy and while TED rises it becomes more difficult to get a funding. Currently the TED index is on 31.38 points, that indicates that the market is relatively calm. As we can see on Bloomberg graph here at the pic of the finance crisis (in mid September 2008) the TED high rocked to a really whopping 463.61 – indicating a big panic and that the banks weren’t willing to borrow money at all.

Do you love to eat Big mac? I don’t – but let’s leave the taste question alone. So, what’s the Big Mac Index – it measures the foreign currency exchange rate based on the price of the big mac at the local McDonald. The assumption behind this index is that the Big Mac price represents the purchasing power of the local currency. If you believe that the Big Mac price represent something you may use it as an indicator for the future currency movement. The currency that is “undervalued” (against the USD) is supposed to go up and vice verse. As we can see from the Big Mac Index site in Switzerland the Big Mac price is a whopping 6.2$ and the “Over(+) / Under(-) Valuation against the USD, % ++” column suggests that it’s 74.86% overpriced related to dollar. Personally I don’t take this index to seriously – and as long as I know there aren’t any studies or researches that have checked or based on the Big Mac index. Nevertheless, I think that it’s just funny that you can compare the relative price of such a popular product in so many countries.

Freakonomics – I have to admit that it’s one of my favorite books. Maybe because it’s the first book that integrated psychology economy and common seance that I have read (the fields’ name is behavioral economy). Maybe  cause the book is really great – it’s very informative and unpredictable. This way or another I was quite exited to read the continuation book – SuperFreakonomics- also by Steven  D.Levitt & S. Dubner. I will start from the end – the bottom line is that I liked it  less than the Freakonomics book.  One reason is that their style (with seemingly unconnected questions at the titles) wasn’t new for me anymore. Or cause the subjects weren’t so interesting as in the first book. Maybe my expectations were just too high (probably this is the “right” reason). This way or another I liked the first book more (unfortunately, that is usually the case with great “things” and their continuations). Read more…

Have you ever been to Saint Petersburg? A great place to visit that generally has… nothing in common with Saint Petersburg paradox, except of the name of course. So what’s the St. Petersburg paradox? Suppose I offer you the following lottery – I’m going to throw a fair coin till the first time it fall on head. Your revenue is 2^N $ – where N is the number of throwing.  How much money are you willing to pay to participate in such a lottery? The most common answer is in the 6-8$ range. The paradox is that the expected value of your winning is infinity (so in theory you should be willing to pay any finite sum for this lottery).  You may see a nice simulation of the auction with a 20$ entrance fee here and read more about the paradox and offered (mathematical) solutions here.

By the way, so why “Saint Petersburg Paradox” – as I have hear – but I’m not sure on how my info is correct,  such a lottery was offered in Saint Petersburg casino in the 1750 years for an entree fee that is roughly equal to today’s $100, but there weren’t much demand for it.

I have wrote a while ago about the bad issues related with Multitasking. I have read today a great article at New York Times named Tweet Less, Kiss More by Bob Herbert.

In short the idea of the article is simple – we can’t obsessively all the day long check email add friend to our facebook  and twitter account and write sms.  We have to live – the technology should improve our life not replace it!

Bob has another great suggestion for us to LISTEN – he says that other also have interesting things to say and share with us – and if they haven’t – “that glorious silence that you hear will have more to say to you than you ever imagined”. Read the Tweet less kiss more article here.

Think about it – If I told you that I throw a standard six-sided die 6 times in a row and got the following numbers (just random numbers): 4,2,2,5,3,1. You will say OK and believe me,  while if I say that I got the following one: 6,6,6,6,6,6 I bet you won’t believe me. But if you think about it – the probability to get any of this serious is the same. Let’s look on it: The probability to get any number on each throw is 1/6. So the probability to get the row “4,2,2,5,3,1″ is 1/6^6=~ 2.14*10^-5 (roughly) zero. But the probability to get  “6,6,6,6,6,6″ is absolutely the same 1/6^6 (again almost zero).  So why do you believe me when I said that I got 4,2… and haven’t with the “6″ six times? It’s all about expectation. To get any random row looks “normal” while to get a “beautiful” one looks suspicious.  Read more…

Rich Man, Poor Man- a novel by Irwin Shaw. Irwin Shaw (1913- 1984) – was an American Novelist, in his books Shaw generally write a few different stories that finally meet. Recently I have reread Rich Man, Poor Man
and I have to admit that it’s one of my favorite books.  In short the book tells the story of an incredible poor family and their life. Most of the book is going through the life of one of the families sons – talented but emotionless  young boy that has one big goal – to become rich.

Read more…

Recently I come across ,in my opinion, very useful site.  The site’s name is Lending club and as the name suggests  – it’s a  peer lending network investors and borrowers. For those who are looking for a loan and those who are searching for opportunity to  invest money.  I think the idea of lending club come from – or at least have something  in common with Muhammad Yunus Grammen Bank idea.

So what does the site offer for each of the investors and borrowers? Let’s start from the investors:

First of all – as they claim on their site “Investors have earned average returns of 9.64% on their investment”.  Is it good or bad? The short answer is depends! Read more…