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I may have been a bit hyperbolic about freeloaders. The bigger point I want to make is that the standard deviation on returns of a single venture like Trump's
by tanderson92 10y ago
I may have been a bit hyperbolic about freeloaders.
The bigger point I want to make is that the standard deviation on returns of a single venture like Trump's is so large that you cannot meaningfully compare it to a highly-diversified basket of stocks.
To use your analogy, it'd be like evaluating the effectiveness of a coach in a swimming event by picking a single one of their swimmers and comparing them to the average times of the U.S. Olympic team. Does this necessarily imply anything at all about the skill of the coach?
- asdfasdfa11112 10y agoIt does not, but it is a useful benchmark to evaluate the claims of a swimmer with below average times who insists they become team captain.
- zaphods-towel 10y agoI feel like you're making an argument against your thesis instead of for it (?). With higher risk, you expect higher return... so isn't that another tick against Trump's "success"? His ventures were way riskier than an index fund (see bankruptcies and losses), yet they had a markedly lower return. That means they were not good investments.
- tanderson92 10y agoWell there are two possibilities: 1) Trump's businesses are lower risk and so the lower realized return is as expected 2) there is significant idiosyncratic risk in a single company which can diversified away with the S&P500 while maintaining the same expected return. I disbelieve (1) because of his multiple high-profile bankruptcies.