On 2008-03-20 02:14:42 -0700, dapperdobbs <GeorgeCFL@[EMAIL PROTECTED]
> said:
> I'm not trying to be facetious or lay "traps" here - I really would
> like to clarify this.
>
> I see the probabilities as a mathematical game not unlike roulette.
> I see analysis as absolutely critical to financial planning and
> investment.
True. Mathematical models for making predictions about the future have
to assert something like "If a, b, c, ... are present, then the
probability that x will happen is such-and-such." This may work for a
while and lead to some accurate predictions, but almost always some
further conditions not taken into consideration (d or e) will come
along and make the model useless. This is especially likely to happen
in long-term financial predictions, because so many unexpected
variables can enter the picture as governments change, new things are
invented, wars occur, etc.
The same principle applies not only to detailed mathematical models,
but also to a lot of generally accepted wisdom such as "stocks return
more in the long run than real estate," or "banks are secure," or
"government bonds are safe," and so on. That is a reason I would argue
that diversification among asset classes is just as important, if not
more important, as diversification among stocks.
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