O Captain! My Captain!

So August 11 was a sad day apparently; I managed to misplace my keys.

In other news, I found some of the movies you can find on Netflix and Amazon Prime starring a Mr. Robin Williams.

Inflation - Why the official numbers are wrong!

I'm certainly not the first to claim this and I won't be the last. But I think I'll say this differently than most who happen to say it.

For starters, when I refer to inflation, I'm preferring to price inflation.  Some (particularly Austrians), by inflation, mean monetary inflation so I think it's important to be clear on what's being discussed.

Many feel that the current inflation figures (whether we're talking CPI or CPI minus food and energy) understate the actual rate of inflation. Other methods are sometimes used which in many cases are not any better than the official numbers (and in many ways worse.)

Howerever, what I'd like to suggest is that Any method of coming up with an inflation number is flawed. To understand this we'll have to take a brief detour.

Is AMD a better value than Intel?

Bruce Greenwald, in his book Value Investing: From Graham to Buffett and Beyond, devoted an entire chapter to Intel and its competitive advantages. Of particular note was its economies of scale which permitted it to spend less on research & development than AMD as a percentage of sales.

That appears to still be true today but less so:

How to Use More than 10 Percent of Your Brain

Every now and then I happen to catch some regular good 'ol fashion TV. Such events are not as common now as I typically stream content from the likes of Netflix and Amazon Prime if I'm going to sit myself down to be entertained.

Anyway, I happened to catch a commercial for an upcoming movie called Lucy. Here's the trailer:

The Expected Return of a Put Option

In my previous post, I explored The Expected Return of a Call Option by assuming that stock price returns follow a normal distribution. I then looked at some attributes of the distribution of option returns under that assumption.

Today I'll apply the same technique to put options.

Some Recent Updates to AF2P

So I've made some changes recently. Here's a quick overview of some of the changes (feedback welcome).

Look

So I've changed the color scheme a bit. It looks different (better?) Take it for what it's worth (probably not much; I'm pretty lazy when it comes to aesthetics.)

Share Buttons

I've changed the share buttons a bit. If any of them don't work let me know.

Reactions

These are located beneath the share buttons. They allows you to check a "reaction" to a blog without responding. If you have ideas on more reactions you'd like to see, let me know and I'll consider adding them. (I wanted to add something like "garbage" but I wanted to use a better term than "garbage". Feel free to offer suggestions.

Comments

So I was recently informed that my comments section was restricted to those only with a blogger account. While I still want to avoid anonymous posters, I did expand the reach a bit. You can now respond with a blogger, WordPress, AIM (1990's anyone?), LiveJournal, TypePad or OpenID account. The latter should open up many options including Google and Yahoo accounts (see here.)

Subscription Options

There are a variety of subscription options. You can still use feedburner which allows you to subscribe via any RSS feeder or email. In addition, my twitter and facebook page auto-post items from feedburner so following either of those would suffice as well.

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The Expected Return of a Call Option

If I were to buy a call option, what return should I expect to get? Is it worth buying? Or is it a losing proposition?

Today I hope to address this question from one angle. What does standard finance theory actually have to say about the matter?

Now of course standard finance theory may very well be wrong. Some of the assumptions that will be used today are problematic.

As it turns out, this presentation will be a sort of a proof by contradiction. I believe it will show that standard finance theory is inconsistent. Or at a minimum, certain propositions that are often assumed in various financial models are incompatible depending upon interpretation.

While my interest in this is somewhat academic (aren't all of my interests?) there may be a practical application to this which has to do with estimating the cost of equity. It may be possible to use this device as an alternative method of determining cost of equity (say, versus the lousy CAPM model.)

But that will have to be worked out some other time. Today I just want to show how one can calculate the expected return on a call option.

Real Estate: The Better Inflation Hedge

In my previous post, I discussed having a healthy dose of skepticism when one sees a correlation between two variables. The relationship may not hold very well out of sample (such as future performance).

But I also discussed gold as an inflation hedge and I suggested that gold was a lousy inflation hedge in spite of what most people seem to believe.

Today I want to discuss another asset class which, although may or may not be a good inflation hedge, is nonetheless a better inflation hedge than gold. Furthermore, this asset class has many other attractive features that suggest it should be pursued before gold if you're looking for a hedge against inflation.