All of the scenarios have an expected value (return) of 3% and all have a volatility of 4%.
They are all Bernoulli trials in that there are only 2 possible outcomes. They differ both in the probabilities and the returns (or losses) for each possible outcome.
Scenario A:
50% Chance of 7.00% Return
50% Chance of -1.00% Return (1% Loss)
Scenario B:
10% Chance of 15.00% Return
90% Chance of 1.67% Return
Scenario C:
90% Chance of 4.33% Return
10% Chance of -9.00% Return (9% Loss)
If you have a distinct preference select the one option that fits your preference. If you are indifferent to two alternatives you can select both.
Example: Suppose you like option A the best but are indifferent between B and C. You could select both: A > B > C and A > C > B.
Feel free to offer comments on why you have the preferences you do.
B is the only scenario where no loss is possible--a great outcome, but not very realistic since numerous factors can drive a stock down.(Buying a solid value stock at a depressed price for a margin of safety is probably the closest to scenario B). A is like a high yield foreign dividend stock with irregular payouts. C is like a moderate growth stock. My portifolio has a mix of value and growth.
ReplyDelete@Lemoneater,
ReplyDeleteInteresting comparisons.
Thank you for the fun poll. Have a great weekend!
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