Sounds like Yiddish for a back seat Saturday night escapade, doesn't' it? But...it's not.
The Stutzer index is a tool for analyzing investment performance. It’s nice for hedge funds in particular, since it doesn’t assume a normal distribution.
The Stutzer index assumes that portfolio managers design investment portfolios with the expected outcome of negative returns over a benchmark converging to zero in the long-run. It works by favoring higher values, and penalizing underperformance. This results in the index favoring portfolios with fewer extreme variations, which should give the portfolio a better-than-average shot in market returns.
The nice thing about the Stutzer index is that it’s more robust than some really basic investment portfolio performance measures, but it’s still accessible enough that you could do it on a spreadsheet.
However, it does take a lot of data over time before it will give you legit results. Also, it doesn’t take into account the fact that people get more risk averse as they get closer to retirement...or that, maybe the other way around, people get less risk averse as they have more money to play with.
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Finance: What is an Expected Return?8 Views
Finance, a la shmoop. what is expected return? Okay we've been experimenting for
months on libertarians with cancer in a gwangju prison. Our drug is gonna do one [ man swallows pill]
of three things. A. it may make the prisoners glow in the dark. Not all that
useful as a drug discovery but it would allow investors to sell the company to [man's face glows]
cirque de soleil who would be thrilled to cut down on bodypaint expenses. All
right well if event A happens investors will get at least a 20% return on our [circus performers shown]
money odds of the the glow must go on happening ? 35% . okay moving on. Event B, our
drug may well just kill them - yeah that's a bunch of libertarians in a gwangju
prison. Who's gonna notice, right? in which case investors lose all of their money [money on fire]
and the glow must go on just folds up tent, and goes away. The return there
would be zero. Odds of this happening? Well, 60% yeah
six out of ten. Probably gonna die. okay event C the drug cures cancer! If that [written explanation shown]
happens while investors get a thousand percent return on their money .Save the
world and in general improve their tinder match ratio by like a zillion.
Odds of this happening, well just 5% but hey it's worth a shot right?
So our adjusted probability chart looks like- this - see we got return and odds and [chart shown]
expect the case 2035, 7 yeah there we go.
So what is all this telling us ? Well that the overall expected return - yeah you
knew we'd get there eventually - is a 57% return on our investment. Great return!
bottom line do it the chance of curing cancer would be well worth the risk. And [people dance]
if not well at least there would be fewer bicycling accidents.
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