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It's about decreasing risk and volatility. If you're an insider in Zynga or Facebook, you might have slightly more information than the stock market...but proba
by marvin 14y ago
It's about decreasing risk and volatility. If you're an insider in Zynga or Facebook, you might have slightly more information than the stock market...but probably not a lot. You can't expect to out-guess the market considerably.
All else being equal (in other words, unless you have information that the rest of the market does not), your expected return will be the same if you own one stock in a certain industry as if you own a lot of different stocks in the same industry. If you roll one dice, the average number of eyes is the same as if you average over 100 dice rolls...but the probability of ending up at the extreme end of the scale is much higher. This is why investors want to diversify.
What is best, in practical terms, for an average person: getting a guaranteed 2 million dollars or having a 1 percent chance of getting 200 million dollars?
- anon808 14y ago"If you're an insider in Zynga or Facebook, you might have slightly more information than the stock market" What if you're the guy running the entire company? Will this mythical 'market' you keep referring to run your company better than you can?
- marvin 14y agoThat I have no idea about; you'd have to do a survey and get honest results from CEOs which have run companies that tanked. CEOs have much more insider information than "this mythical market", but I'm sure primary insiders have occasionally been blindsided by a crash in the stock value before it was obvious that anything was wrong with the company. Regardless, Pincus & co. will probably be investigated by the SEC after this. Illegal insider trading is punished very harshly.