To specialists in the theory of probability. I have a portfolio of 10 stocks. What is the probability that 2 of my 10 companies will go bankrupt next year? - page 7
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
This is in your case.
Like a sports lotto, with 5 numbers chosen no one comes out, although people guess both 4 and 5 numbers, it's a matter of luck as to who picked what.
https://www.uschamberfoundation.org/blog/post/what-s-cause-and-effect-plummeting-public-firms
What makes you think that you have chosen the 10 companies that cannot go bankrupt and assume the probability that among them
there might be one or two companies that will go bust. You don't take into account that you chose companies that will all merge next year.
That's what I'm talking about. And don't take it personally. You ask a question, you get an answer.
But I have already given the example of Kodak.
There are many such examples.
The technology of cheap shale gas production was invented - the traditional companies with high production costs went bankrupt.
A pharmaceutical company launched a bad product, someone died from it, the authorities banned the product - the company's shares crashed the same day.
companies a and b were selling books. company a started selling books on the internet - company b went bankrupt.
Of course, you could say that in a well-chosen portfolio, nothing should ever go bankrupt. but you want to insure yourself against "accidental" bankruptcies.
I wrote that 1/100 of companies go bankrupt in a year.
But you still need to distinguish between cases of "sudden" bankruptcies, and cases where a company goes bankrupt slowly and systematically, when its profits are falling slowly.
well done !
But then the fierce bearded men with sheets of code explain that bankrupting someone else's company increases the chances of the companies in your portfolio. In all seriousness.
Good for you!
But then the fierce bearded men, with sheets of code, explain that bankrupting someone else's company increases the chances of the companies in your portfolio. In all seriousness.
Maybe it's the "hear the bell..." principle at work there. The hypergeometric distribution is used in the exact Fisher criterion, which you can use here. With it, at the end of the year (rather than at the beginning of the year) we can determine how well we were able to pick stocks by comparing the share of bankrupts in our portfolio to the share of bankrupts in the entire market.
Last year 50 out of 5,000 companies went bankrupt in the US market. So the probability of a company going bankrupt is 1/100.
I have a portfolio of 10 stocks.
What is the probability that 1 of my 10 companies will go bankrupt in a year? It's easy to calculate.
The probability of one company going bankrupt is 1/100. And we take 10 companies, so we increase the odds of the event occurring by a factor of 10.
So we get a probability: 1/100 * 10 = 1/10.
What is the probability that 2 of my 10 companies go bankrupt in one year? How do we calculate this?
It seems to me that it would make sense to talk about probability if the portfolio was assembled by a randomiser, and did so many times (years) in a row.
And here your contribution to the success of the portfolio is so great that the statistics are left out.
For example, if your intuition tells you to add 10 companies from the same sector (e.g. pharma) to your portfolio, they all stand a chance of going bankrupt at the same time (if, for example, mankind believes in magic mushrooms that cure all diseases in one day). And it would be a different story if all 10 companies were from different sectors.
Again, if you only take the giants, the statistics will be one (but not necessarily sufficient for analysis), and if on the contrary - "young prospects" - a very different story (much worse than 50 out of 5,000).
And solving the problem for a random 10 companies is neither interesting nor practical.
It seems to me that it would make sense to talk about probability if the portfolio was assembled by a randomiser, and did so many times (years) in a row.
And then your contribution to the success of the portfolio is so great that the statistics are left out.
For example, if your intuition tells you to add 10 companies from one sector (e.g. pharma) to your portfolio, they all stand a chance of going bankrupt at the same time (if, for example, mankind believes in magic mushrooms that cure all diseases in one day). And it would be a different story if all 10 companies were from different sectors.
Again, if you only take the giants, the statistics will be one (but not necessarily sufficient for analysis), and if on the contrary - "young prospects" - a very different story (much worse than 50 out of 5,000).
And solving the problem for a random 10 companies is neither interesting nor practical.
Let's not get ahead of ourselves - let's leave the problem abstract and not require studying company statements and the entire stock market and economic summaries by sector. It won't fit in the forum
But solving a problem for 10 random companies in a perfect virtual market is very useful, but even that is not solvable... You just want to smack your head with an old Wentzel :-)
Let's not get ahead of ourselves - let's leave the task to the abstract, and not to examine company accounts and the entire stock market and economic summaries by sector. It wouldn't fit in the forum
But solving a problem for 10 random companies in an ideal virtual market is very useful, but even that is not solvable... I want to smack the old Wentzel on the head :-)
The first company dies with a probability of 0.01. The second company dies with nearly the same probability, but only if it hits exactly 9 of my remaining companies (4999 in all). You know the formula for the probability that both events will happen.
ZS: Don't take Wentzel in vain.
The first company dies with probability 0.01. The second company dies with almost the same probability, but only if it hits exactly my 9 remaining companies (4999 in total). You know the formula for the probability that both events will happen.
SZZ: Don't take Wentzel in vain.
No, we won't - the events are independent.
Man, how to explain it more clearly...it's like radioactive decay - you have 10 atoms of the rare Nuinahcium, about which we know that out of 5000 atoms 50 decay in one year.