At the Junto

日期:2013/08/02

After putting up a chart of the Dimson, Marsh and Staunton very thorough enumeration of buying every stock in the US, from 1899 to date showing that $ 1 grew rather steadily to 25507  (the 1929 and 2008 declines look like blips), my college roommate Jim Wynne, in the audience, who recently won the equivalent of the Nobel prize in engineering for inventing laser surgery asked, "how could you say buy and hold" which was sung beautifully by Tamra Paselk (to the tune of "Night and Day"), is great when stocks like Kodak and Xerox have fallen on such hard times or gone bust and so few of the Dow stocks of 1899 are here today.

I explained that the complete enumeration of the triumphal trio covers all bad and all good (they even take account of the total zero of Russian stocks in 1914 and China in 1944), and there are many bad and many good that make up the totality. But on the spot, I couldn't think of a physical example to show that taking one instance of an experiment, an anecdotal approach, the flash of one outlying proton in a collider , did not determine the average results, and that diversification of 12 stocks would give a correlation of 95% or so with the results of the trio.

What physical analogy should I have used to educate my erudite former roommate who is now working on a cure for skin cancer with the same lasers he used to create laser surgery.