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Added Aug 3, 2009
Channel Education
Duration 4:19 | views 58016
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Tags galton box statistics normal distribution bell curve gauss gaussian index funds ifa.com investing mutual stocks investing news stock market news stock market picks efficient markets how to invest index funds index investing modern portfolio theory stock market financial news indexes madoff smart investing portfolio theory fama french economic crisis recession global economy diversified investing diversfication stock risk international investing etf mark hebner
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Recent Comments (101)
6720059 Says:
amazing
IndexFundsAdvisors Says:
Stock market returns are independent variables. The R Squared of First Day Returns vs Next Day Returns on 14,634 daily returns is 0.0052.
qwertybg Says:
You are wrong. For large number of experiments (large n) Bi(n,p) can be approximated to the Normal distribution N(np;np(1-p)) . Hence the bell shaped curve.
expatinasia62 Says:
Strictly that's "Central Randomness" where the underlying events are independent of one another. That's where the 50% path per pin comes it: even sub event is independent and "perfectly" so. This is not the only kind of randomness: only the most convenient to calculate and use. If you do not have event independence, where Event 1 influences the probability of Event 2 but both Event 1 and Event 2 are both counted together in the same distribution, then central distributions do not apply.
JustSpeculating Says:
Great job. I've always loved this concept tied to passive investing. Such an elegant analogy... some active managers will win just due to chance. Even better, account for survivor bias and remove the lowest ones. Even if all managers are just throwing darts, some get to brag about how great they are and the others fade away.
gtacrusher123 Says:
ok thanks
IndexFundsAdvisors Says:
The base can be taken off at the back and we can take out beads as they drop down a channel.
IndexFundsAdvisors Says:
The machine has a timer that controls the length each cycle of beads falling. It has another timer that can be set between 1 min and 60 minutes and initiates each cycle of beads going through the pins.
clipper721 Says:
The beads only drop in at one point (centre) and can only travel left or right for a certain distance due to the depth of the drop (there only thirteen rows). So the maximum deviation in one direction is thirteen. This is not a truly random test, it is a machine that has been designed to describe a bell shaped curve, and a bell shaped curve is exactly what you would expect to get if you measure a phenomena over a period of time. So what is your point?
equilshift Says:
Just thought I might let you know that even the greatest minds that ever lived have struggled over this, and will continue to struggle over it for generations to come. (Indeed, eliminating the randomness "inherent" in our understanding of quantum mechanics was Einstein's white whale, he spent most of his academic career fruitlessly striving to eliminate the need for chance in our description of the universe.)
equilshift Says:
he never said that explicitly. Anyway, there is another (much larger) group that believe in the concept of randomness, and that certain things in this universe just absolutely cannot be predicted. Our best understanding of quantum mechanics at this point includes an element of randomness. Anyway, it might be philosophical for we scientists, but it is less academic and more practical for economists and social scientists such as yourself who try to describe the universe through numbers
equilshift Says:
(i.e. the location, direction of travel and mass of every particle in the universe) that the future could accurately be predicted, and that, in fact, one could sort of "see into the future" using numbers. Of course this is totally philosophical, since any computer doing that would have to somehow calculate its own effect on the future, as well as the impossibility for fulfilling the requirements of "enough information." Einstein might have been considered to be in this camp, although
equilshift Says:
This video has always fascinated me, and reading through the recent comments I just wanted to say that people are probably just pretty angry about the current financial system in the US, I wouldn't take it too hard. And this video always gets me in a philosophical mood. There is a (small) group of physicist which are sort of loosely referred to as determinists, who believe that, given enough information about the universe
gtacrusher123 Says:
how do you get the balls out
IndexFundsAdvisors Says:
IFA provides: 1. Emotions Management 2. Fiduciary Duty 3. Ongoing Advice 4. Client Services 5. Rebalancing 6. Tax Loss Harvesting 7. Performance Reports 8. Glide Path 9. Continuing Education 10.Tax Management 11. Chart and Data Updates 12. Cash Withdrawal and Deposit Management 13. Wealth Management 14. Alternative Investment Evaluations & other services and advice as needed. As seen in this video, market returns are random, but our services and compliance requirements must go on.
IndexFundsAdvisors Says:
- IFA is an independent RIA and we do not own funds. We provide fee only fiduciary advice to clients. We advise clients to invest in 1 of 100 index portfolios depending on their risk capacity. The Index Portfolio #100 you are referring to dropped 40.55% in 2008, but it was up 8.28% annualize over the 11 yrs, 1 mo period from Jan 2000 to Jan 2010. The simulated return for 83 years is 11.23% annualized with std dev 23%. You can see this at ifacalc dot com. Please read ifabt dot com.
sfsTrader Says:
with a little analyzing, anyone can look back in hindsight and come up with a strategy that "would have produced great returns". your fund has been around for 10 years and in the 8th year, 2008, you lost about 41% off your high, erasing most of your first 8 years worth of gains. then you got back to your high within 2 years. sounds a little volitile to me. that steady growth shown in your back tested charts seems to have ended when you guys opened shop. can you explain this volatility?
axe863 Says:
Fyi, its is far more complex. There's aggregational "quasi-Gaussianity"(tail heaviness decays as aggregate over increasing time scales), multi-scale intermittency (multi-time scale irregularities), volatility clustering, nonlinear dependency (nil return auto-correlation whilst absolute and square returns auto-correlation exhibit a slow decay) etc. Holding a longer term sufficiently diversified portfolio (except in the unusual case of an infinite first moment) is beneficial.
sfsTrader Says:
you earn a "fee" on client's assets....thats kind of performance oriented. are you not confident enough to earn a fee on percentage of gains?
IndexFundsAdvisors Says:
- You asked if we work on commissions. No, we do not. We are a fee only registered investment advisor with a fiduciary duty to our clients. We are paid a fee that is based on a percentage of clients assets.
sfsTrader Says:
Of course fat tails matter for passive investors, surprises matter in the markets. You make all your money on commisions, dont you?
IndexFundsAdvisors Says:
. Of course there are fat tails, but for passive investors it does not matter. Also, in the last 50 years you do not see fat tails in risk-appropriate holding periods. For example, Index Portfolio 100 held for 15 year periods does not show fat tails. See discuss and links in the video description above. mark
sfsTrader Says:
cool. i would like to make machines that have lights and parts that shake or shoot out steam like in old cartoons/movies. FYI in reality stock markets have a bell curve with fat tails
IndexFundsAdvisors Says:
Coetmor, This may help you in your understanding of randomness in the context of statistics and finance. See Wikipedia's page on randomness: In probability and statistics, a random process is a repeating process whose outcomes follow no describable deterministic pattern, but follow a probability distribution, such that the relative probability of the occurrence of each outcome can be approximated or calculated.
coetmor Says:
mongo-science. Random my arse. The tendency towards the centre is caused by the beads entering via the center.