# somrh (85.75)

## somrh's CAPS Blog

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July 18, 2013 – Comments (5)

So I'm conducting an informal survey. If you want to simply take the poll, click here.

The idea is there are three investment options and I want you to order your preferences for which ones you prefer. I'm also interested in why you prefer the ones you do. So feel free to leave comments here or my blog (linked above).

All scenarios have an expected value (return) of 3% and a volatility of 4%.

Here's a quick rundown of the three scenarios:

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)

Also, if you are indifferent to two scenarios (say you like A but dislike B and C equally), you can choose two options (A>B>C and A>C>B).

#1) On July 18, 2013 at 4:58 PM, jiltin (46.20) wrote:

I like this kind of riddle! I expect minimum 15% return taxable. Even though I do not like get a return of 3% taxable (and 1.5% after tax), I answer here.

First, I do not like my money to get lost. Hence,my first preference goes to non loss making choice, i.e. B

Next is less loss. Hence, by opting A, my loss is less. Natually third choice is C.

In summary, my choice is B > A > C. Logically I derived and then substituted with 100% probability (Assumed chances means 100% achieving it).

By investing \$100k , I get \$3003 for option B, \$3000 for option A and \$2997 for option C.

Thanks for such analysis...It gives me practical life experience.

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#2) On July 18, 2013 at 5:00 PM, jiltin (46.20) wrote:

Note: I could not vote in your site. Neither can update the comments at your site. Some issue the check box is not checked whatever I do (google chrome browser).

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#3) On July 18, 2013 at 5:20 PM, constructive (99.97) wrote:

A > B = C for me.  I like that the range between the positive outcome and negative outcome is smaller, only 8% vs 13.33% for B and C.

jiltin's logic is also persuasive. B > A > C, based on worst case scenario. As Buffett says, the first rule of investing is "Don't lose money."

I couldn't vote either.

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#4) On July 18, 2013 at 5:40 PM, somrh (85.75) wrote:

Thanks for the feedback. I couldn't get that one working so I switched to a different poll. It should work now.

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#5) On July 18, 2013 at 5:44 PM, somrh (85.75) wrote:

@jitlin,

I hate losing money too. :)

And the option to divide up between portfolios is interesting. I've been setting up some scenarios (say 50% A and 50%) to see what the distribution of returns looks like. I may some detailed analysis later.

@Megashort,

That's an interesting point about range. I wonder if range of possible returns would be a better indicator of preferences than standard deviation.

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