Risk = ??

[bender]

What Gummy outlined is pretty much how we use Monte Carlo at the office. Its one of the tools we use for decision analysis, uncertainty assessment etc (FYI I'm not in finance).

Parameters/distributions/endpoints are always a problem, so trying to describe the markets is no exception - although reasonably constrained by a century or two of data. The input distributions don't have to be mathematically good looking (eg normal, lognormal) either. They can be simple (uniform, triangular), discrete (rolling dice) or any fat-tailed monster that you care to create. A good model builder would then find out what the model output was most sensitive to, and then sweat those parameters.

Well thats the tool, but sorry no answers . Monte Carlo just might beat a monkey in asset allocation... its a great tool to understand the range of portfolio returns possible especially when mixing several asset classes. E.g if an investor didn't like the downside (percent that failed, as Gummy said), they could mix up something safer. I haven't done any more homework on this stuff, so maybe 1/n is the answer anyway.

[Bylo Selhi]

Portfolio Doctor's risk tolerance quiz off to a slow start

Assume that you had a $100,000 portfolio allocated 50 per cent in equities. Let's also assume that you invested it in early 2000, just before the market dropped 30 per cent.

How would you feel about that loss? How would your partner, mate, significant other feel about it? Don't surmise, ask him or her. Honey, how would you feel if your portfolio dropped $15,000 in a matter of days and showed no signs of rebounding for a very long time? How would you sleep? How would it affect your digestion? Your sex life?

And let's say that after the eventual rebound, you have to wait at least six to eight years before achieving a reasonable return — historically for a well-diversified group of domestic and international large cap equities that would be in the 10 to 12 per cent range annually.

"Wait a minute," you say. "That's a pretty extreme example." Actually it's not.

[nadreck]

Bylo, I only started managing my own investments in 1998 and that started with a 50/50 split in my RRSP between MF's recomended by a boutique investment house (Financial Concepts - note that while I had money there the franchise switched allegiance to become an RBCDS franchise).

After the first two years of this 50/50 split I became quite disenchanted by the performance of the funds the FC franchise had put me in: AGF Canadian Small cap (called the 20/20 AGF Agressive equity fund back then), AGF Canadian Growth Equity fund and the AGF International Value Fund and the CI Boomernomics fund (held from 1999 to late 2000).

My risk tolerance is probably greatly influenced by my success in the 1998 - 2001 period investing the other 50% in a few equities. By late 2000 I took the back end fee hit on all my MFs and put all funds into equities that I managed in my RRSP. My RRSP performance was 20% in 1998, 30% in 1999, 20% in 2000, 10% in 2001, 0% in 2002, 85% in 2003, 25% in 2004, and 32% in 2005 todate. My sleep was most affected, my performance at work distracted, and yes even my sex life adversely affected by the stress I felt in 2003 (though I have to add that I had other factors in my life stressing me).

By 2003 and since then, I am continuously ready (emotionally) for a 30% drop in my portfolio. To ensure that a an emotional response to my portfolio fluctuating in value I now buy strip bonds several years out for my planned spending money. I had started at buying 5 year strips each January with a fixed percentage of my equity portfolio (6.42%), and now, with some comments from people on this board, have decided to add a year's margin of income every time that within a year I have had more than a 25% return. So this January I will be buying 6 year strips and will have 6 years spending money locked in. Should I have a -30% year, then I will have at this point 6 years warning that my spending money will be roughly 30% lower that future year than the year before it, I can transition to a number of lower income years by "saving" out of the other years if necessary. Certainly I can avoid the necessity of making some sort of knee jerk reaction in my investing practices.

This mechanism ensures that if I only have a 7% return on my equities then I tread water. If I have a couple of -30% years in a row, then bonds are up over 40% of my portfolio, if instead I hit the median return I expect (10%) they will be just under 30%, if I were to have three 24% years in a row bonds would be worth 40% more but make up only 24% of my portfolio.

So the better I do the more money I have in bonds but the lower percentage they are of my portfolio.

Am I nuts to believe that if I acheived the sort of returns I have over the last 7 years that I can average 10% or better going forward? Many people would certainly suggest that it was unreasonable. However, if my methodology for investing does have any merit it must not be influenced by an emotional reaction to a one or two year performance which would keep it from taking the same risks and thereby limit my returns after I had suffered the largests losses.

So to answer that question about my risk tolerance from the article quoted, I am emotionally prepared at any time to lose 30% of my equity portfolio, including right after I have lost 30% and not change my investing strategy, however, if I suffered a third loss on a row of 30% I would be down to less than 30% of my original equity portfolio and would have more than half my funds in bonds and would certainly be afraid then that I had change my plans and methodology significantly.

[nadreck]

Yes but the measures you are talking about do not tell you what the volatility of the return will be in the future just what they have been in the past.

Yes, but human nature is to look at past trends and project them into the future.

So would you say that dubbing the measure of the standard deviation of past volatility "Risk" was simply a flaw of human nature?

If I flip a coin their is equal risk of one outcome or the other. When I invest, I look to what I think the odds of possitive and negative outcomes are and completely ignore share price performance except where I see it as a probabilistic factor when I see significant odds that a company will need to issue new shares to raise money to complete the projects I am basing my fundamental analysis on.

I never invest in equities based on an expectation of a continuation of previous returns, but instead on an expectation of a continuation (or improvement if it is warranted or deterioration if it is warranted) of the effectiveness of their businesses ability to spend its retained cash flow (or of its ability to liquidate its assets and pay its shareholders off in some limited applications).

So I still say that it is an absolute misnomer to label the standard deviation of volatility or of net return "risk". But I am not in any position to alter the lexicon of the supposed professionals in the field. However, I enjoy a comfortable relationship with the concept of Risk meaning the likely hood of a given event happening or the likely hood of anything but that given event happening.

I think that people who do not understand "Risk" in the absolute meaning (not the specific technical one with a narrow mathematical definition) are bound to have severe problems making dispassionate investment decisions and that axiomatically therefore those investment decisions that they make that are emotionally motivated will be far more likely to produce bad results than the rest of their decisions.

As I mentioned in my last post, the fact that it is when things are at their worst that the negative emotions would have the most sway, is what would sabotage the investor who does not understand their relationship with "Risk" (the english definition, not the technical one).

[like_to_retire]

performance was 20% in 1998, 30% in 1999, 20% in 2000, 10% in 2001, 0% in 2002, 85% in 2003, 25% in 2004, and 32% in 2005 todate. My sleep was most affected, my performance at work distracted, and yes even my sex life adversely affected by the stress I felt in 2003

A couple of very interesting posts Nadreck.

I applaud your candor and also your 2002 returns of 0%. Even with my extremely conservative allocation during that year I was only able to pull off a XIRR of -4.5%.

I remember that it was at that point that my emotions got the better of me and I reduced my equities from 35% to 25%. Over the next several bull years, when my equities took off and upset that balance, I tried to remember how I felt in 2002 and subsequently rebalanced back to the 25%. No problem with sleeping when you have only 25% in equities.

Now, after three years of very good returns and rebalancing several times back to my target allocation, I find myself again rethinking it. Emotions play a big role in this investing game...... I do enjoy it though...great hobby..

ltr

[ghariton]

So would you say that dubbing the measure of the standard deviation of past volatility "Risk" was simply a flaw of human nature?

No. I think you will find broad agreement among financial analysts, etc, that what is relevant is the future volatility. People look at past volatility as an indicator of what future volatility might look like. You may argue, and I would agree, that mindlessly extrapolating the past is not a good idea. But that is a different debate -- the one on human nature that you refer to. It has nothing to do with definitions.

When I invest, I look to what I think the odds of possitive and negative outcomes are and completely ignore share price performance except where I see it as a probabilistic factor when I see significant odds that a company will need to issue new shares to raise money to complete the projects I am basing my fundamental analysis on.

I said above that one should not mindlessly extrapolate the past. But, as a good Bayesian, I also believe that there is a lot of useful information in the past. One should not merely throw it away.

So I still say that it is an absolute misnomer to label the standard deviation of volatility or of net return "risk". But I am not in any position to alter the lexicon of the supposed professionals in the field. However, I enjoy a comfortable relationship with the concept of Risk meaning the likely hood of a given event happening or the likely hood of anything but that given event happening.

You are, of course, free to make up any definitions you wish. As you say, people who have developed a definition that they find useful for their purpose, will ignore your definition.
_______________________________________________


In general, people on this thread should remember that volatility is a concept that includes the entire probability distribution of possible outcomes. Standard deviation is just one summary measure of that distribution, nothing more. Depending on circumstances, it is a more or less useful summary. But then that is true of all summaries. In particular, one should not rely on summaries for taking important decisions.

Georges

[gossg]

The general problem here is that in ordinary English usage the word "risk" typically means "likelihood of failure", whereas in technical usage risk describes the volatility of a likelihood. There is no ordinary usage term that is equivalent to the technical definition of risk as volatility.

"blurry".

How blurry is that forecast?

[nadreck]

No. I think you will find broad agreement among financial analysts, etc, that what is relevant is the future volatility.

Why the obsession with future volatility to the exclusion of future value? To me volatility is a given if I am going to invest in equities, and even to some extent if I am going to invest in corporate bonds. The real question to me is not what volatility is going to be in the future, but is a current appearant discrepency between price and value a symptom of volatility or an indication that value has changed?

I said above that one should not mindlessly extrapolate the past. But, as a good Bayesian, I also believe that there is a lot of useful information in the past. One should not merely throw it away.

But what does that volatility measure tell me that is of any use? It does not explain why one security is more volatile than another, it simply tells me that it was. I don't see any practical value in it from a long term view of investing, and other than trying to pick the best price possible for a buy or a sell, I have little interest in technical analysis and to me volatility is really only of significance to that.

You are, of course, free to make up any definitions you wish. As you say, people who have developed a definition that they find useful for their purpose, will ignore your definition.

I have already beaten my head against the wall many times on the Agnostics mailing list trying to explain that even the dictionary claims that Atheists "believe" in the non-existance of god. However a large contention of atheists insist they have no such belief.

The problem is that the technical term disabuses a much more general concept and by those in the industry continuously using the word Risk to represent a particular metric that can be measured, they are likely to fall into a trap believing that this metric measures the probability or likely hood of loss in an investment which it in no way does.

In general, people on this thread should remember that volatility is a concept that includes the entire probability distribution of possible outcomes. Standard deviation is just one summary measure of that distribution, nothing more. Depending on circumstances, it is a more or less useful summary. But then that is true of all summaries. In particular, one should not rely on summaries for taking important decisions.

Ah, I can't see how volatility includes the entire probability distribution of possible outcomes. It can only be measured for those outcomes that happened not those which were unlikely but not impossible which did not occur. Am I missing something here? Have you a definition of volatility which looks forward to events that have never happened and assigns some level of probability to them?

[jiHymas]

You are, of course, free to make up any definitions you wish. As you say, people who have developed a definition that they find useful for their purpose, will ignore your definition.

...
The problem is that the technical term disabuses a much more general concept and by those in the industry continuously using the word Risk to represent a particular metric that can be measured, they are likely to fall into a trap believing that this metric measures the probability or likely hood of loss in an investment which it in no way does.

These lecture notes reflect the view of CAPM apologists that "risk" as defined by standard deviation is functionally equivalent to risk as defined by everyday usage.

To my fixed income examples earlier in this thread, I will add one that is more obviously applicable to an ordinary investor: If the goal is to invest in equities for a fairly lengthy period and then convert to fixed-income, then "interest sensitive" stocks such as utilities might be less risky than a standard-deviation vs. cash might indicate.

[nadreck]

These lecture notes reflect the view of CAPM apologists that "risk" as defined by standard deviation is functionally equivalent to risk as defined by everyday usage.

To my fixed income examples earlier in this thread, I will add one that is more obviously applicable to an ordinary investor: If the goal is to invest in equities for a fairly lengthy period and then convert to fixed-income, then "interest sensitive" stocks such as utilities might be less risky than a standard-deviation vs. cash might indicate.

Seems to prove my point, unless of course you agree with CAPM. I looked at the opening statments though and before going into the details of what they are presenting they want everyone to operate from the viewpoint that risk premiums are uniform, markets efficient, and that in no way is analyzing the fundamentals of a company relevant to understanding the risks facing it. Or in the words the CAPM course used: We next turn to the derivation of the CAPM. We are going to assume that capital markets are well functioning and that everybody has the same beliefs about the means and standard deviations of all stocks. Everybody’s perception of the efficiency locus of all the stocks in the market is therefore the same. In other words, every investor’s perception of the north-westboundary of the attainable portfolios is the same. It is helpful to think of each portfolio on this boundary as corresponding to a mutual fund.

To the CAPM caveats as long as the following were true for two investments they would be of equal risk: They operated in the same business, the equity that each share represented was equal, the earnings of each company was equal, the dividends of each company were equal and their trading history were identical. Yet those two companies could have different debt levels and other fundamental factors which made one more risky than the other.

I don't invest in anything that I think is fairly priced by the market. This CAPM 'course' seems to presume that everything is fairly priced by the market.

[Shakespeare]

If the goal is to invest in equities for a fairly lengthy period and then convert to fixed-income, then "interest sensitive" stocks such as utilities might be less risky than a standard-deviation vs. cash might indicate.

And, as commiescrooge pointed out several years ago on TWB, if the goal is to annuitize at, say, 70, a long bond with a maturity at your age 80 or more may in fact offer lower risk than one that matures on your 70'th birthday because the potential capital variation of the longer bond offsets the interest rate sensitivity of the annuity. So, if interest rates are low when 70 comes, the longer bond offers more capital for the annuity purchase. Conversely, if interest rates are high, less capital is needed, so the lower capital availabilty doesn't matter.

[martingale]

The definition of risk is not "past volatility", it is volatility, as in, expected future volatility. Measures of volatility based on past volatility are just estimates. Several people here seem to have confused methods of estimating a value with the value itself.

Monte carlo analysis is a way of estimating volatility when you boil it away.

[gummy]

Sharpe distinguishes between ex ante and ex post Sharpe ratios (the latter using historical volatilites).

Since the formula(s) require some numbers (like periodic returns), if the numbers are "estimates", then the resultant value is obviously an "estimate".

I think that's one of them thar Laws of Nature

[adrian2]

To the CAPM caveats as long as the following were true for two investments they would be of equal risk: They operated in the same business, the equity that each share represented was equal, the earnings of each company was equal, the dividends of each company were equal and their trading history were identical. Yet those two companies could have different debt levels and other fundamental factors which made one more risky than the other.

And you would be the only one who knows it? Seems hard to believe that they would have the same price and (past) volatility.

I don't invest in anything that I think is fairly priced by the market. This CAPM 'course' seems to presume that everything is fairly priced by the market.

Everything is fairly priced by the market - otherwise it will trade at a different price. For every security you consider worth buying, you would not be able to execute a trade unless somebody is considering it worth selling. OTOH, according to you, it is not fairly priced.

You may well be one of the few who achieve above market returns, but it will be hard to judge whether it's skill or luck. You've been in the right sector at the right time (and in the right part of the country) in the last few years; who knows what the future holds?

[nadreck]

And you would be the only one who knows it? Seems hard to believe that they would have the same price and (past) volatility.

...

Everything is fairly priced by the market - otherwise it will trade at a different price. For every security you consider worth buying, you would not be able to execute a trade unless somebody is considering it worth selling. OTOH, according to you, it is not fairly priced.

You may well be one of the few who achieve above market returns, but it will be hard to judge whether it's skill or luck. You've been in the right sector at the right time (and in the right part of the country) in the last few years; who knows what the future holds?

There we simply have a philosophical difference. I often see companies that are unfairly priced. I could give you dozens of examples, but I am sure you would find some POV that suggested it was all my imagination that saw value that was not really there except until 'luckily' after I bought the security when the market brought it up in price because at that instant its value had increased.

You talk about there being no one to trade with on the market if everyone thought the security value was different. Actually the fact that 100% of the float doesn't trade every day demonstrates to me that most people think it is very different, only the few that buy and sell are somewhere near the same valuation. Why would I sell something worth $10 for $5 if it is trading at $5? conversely if I belive something is worth $5 why the heck would I spend $10 for it if that is what it is trading at? Even the people who do trade stock at a given instant must have at least a slightly different valuation for it. The person selling it must think that there is something else (even cash) that is is worth more at that price, the person buying must think it is worth more than many other things (including cash) to buy it.

As for being in the right sector at the right time I bought and trippled my investment in a year in an entertainment business in 2000/2001 (salter street films), more than trippled my investment in a hight tech company -ATI from 2001 to 2002 sold half, rebought that half and a little more and then doubled it from there in the fall of 2002 to early 2003 (and could have doubled it again after that if I didn't think it was overvalued where I sold it), I started buying a fruit juice producer in 2001 (SunRype and kept buying until 2003) more than trippling from the first purchase and more than doubling overall, I bought and sold and bought again a brewer that has more than quintuppled since I first bought it in 1999. And yes I have a lot of money in oil and gas. I bought into Westjet on the 17th of September 2001, I traded between it and CAE a few times very profitably in early 2003. Most of my market gains came while I was living in the Northwest Territories, tell me how being in Yellowknife helped? I never once invested in Diamonds, and only a tiny investment in gold (Barrick the day after the bank of england announced their massive sale of bullion). And yes I own a lot of O&G stocks starting in 1999 to invest in that sector, and yes I made money in that sector. Now which sector do you think is responsible for my success? I don't think it is any one sector. I have owned something like 80 different securities (70 different companies) and still have just over 40. Is my performance luck or skill? Well, I am sure that random factors have both helped and hurt me, and that factors that I was not privy too were often in my favour so that must count as luck too. So yes I can grant that luck has been in my favour. But heck thats why I only presume to be able to maintain 2/5ths of the sort of return I have annualized over the last 7 years to meet my retirement income and portfolio growth goals.

[nadreck]

The definition of risk is not "past volatility", it is volatility, as in, expected future volatility. Measures of volatility based on past volatility are just estimates. Several people here seem to have confused methods of estimating a value with the value itself.

Monte carlo analysis is a way of estimating volatility when you boil it away.

So can you tell me how I can get an estimate of future volatility that is more accurate than measuring past volatility? I accuse the financial industry on being fixated on one extreemly irrelevant estimating method, often to the exclusion of fundamental analysis.

[adrian2]

You talk about there being no one to trade with on the market if everyone thought the security value was different.

I did not say that. What I've said is that the market assigns a price at an equilibrium level: about half of the participants think a stock is underpriced and the others think it's overpriced. You may be convinced that the half you're in is right and the others are wrong - otherwise you would not trade.

[adrian2]

Is my performance luck or skill?

Of course you believe it's skill.
But tell me, how do you explain the failure of mutual fund managers to consistently and predictably beat "the market"? Don't they have skill; are they not able to do full time with many more resources at their disposal what you've been doing part-time on your own?
Why have there been so few Warren Buffet's in the past century?

[nadreck]

You talk about there being no one to trade with on the market if everyone thought the security value was different.

I did not say that. What I've said is that the market assigns a price at an equilibrium level: about half of the participants think a stock is underpriced and the others think it's overpriced. You may be convinced that the half you're in is right and the others are wrong - otherwise you would not trade.

Now maybe I am overly picky, sometime I think you bring that out in me Adrian, but what you wrote was: Everything is fairly priced by the market - otherwise it will trade at a different price. For every security you consider worth buying, you would not be able to execute a trade unless somebody is considering it worth selling. OTOH, according to you, it is not fairly priced.

now to me that is not the same as saying: about half of the participants think a stock is underpriced and the others think it's overpriced

I think that maybe, at its height, half the participants of the TSE thought Nortel was underpriced, but for most stocks, lets say Salter Street Films when I bought it, the overwhelming majority of the market participants must have seen it as over valued or only fairly valued because it only had a thousand or two investors. The fraction of one percent of the market participants who held it obviously felt it was worth more, and of course so did Alliance Atlantis when they bought them out for about 3 times what they were trading at. I was saddened by that in fact because I considered that this action capped the value of them because I did not expect Alliance Atlantis to be able to capitalize on the talent of the small company. I saw Salter Street as having a palpable chance of becoming a Canadian Disney. I don't see that with Alliance Atlantis.

[adrian2]

Now maybe I am overly picky, sometime I think you bring that out in me Adrian, but what you wrote was: Everything is fairly priced by the market - otherwise it will trade at a different price. For every security you consider worth buying, you would not be able to execute a trade unless somebody is considering it worth selling. OTOH, according to you, it is not fairly priced.

now to me that is not the same as saying: about half of the participants think a stock is underpriced and the others think it's overpriced

You are overly picky, and it's the same thing:
In the market's judgement, a fair price occurs when the buying pressure equals the selling pressure.
If the collective judgement of the market changes, the price changes.

The first quote and the second quote mean the same thing.

[adrian2]

I think that maybe, at its height, half the participants of the TSE thought Nortel was underpriced, but for most stocks, lets say Salter Street Films when I bought it, the overwhelming majority of the market participants must have seen it as over valued or only fairly valued because it only had a thousand or two investors. The fraction of one percent of the market participants who held it obviously felt it was worth more, and of course so did Alliance Atlantis when they bought them out for about 3 times what they were trading at.

Sorry, I don't buy it. The number of investors has no relevance to over- or underpriced, your example is just a small cap stock. Out of all people who cared about Salter Street, at any moment of time about half considered it overvalued and half undervalued.

[nadreck]

Is my performance luck or skill?

Of course you believe it's skill.
But tell me, how do you explain the failure of mutual fund managers to consistently and predictably beat "the market"? Don't they have skill; are they not able to do full time with many more resources at their disposal what you've been doing part-time on your own?
Why have there been so few Warren Buffet's in the past century?

First of all Adrian, I wrote in the same post answering that rhetorical question that YOU believed I only had success through luck and that I believed it was a combination of luck and skill.

Secondly, I have explained to the point of severly offending some investment professionals here, that I believe that mutual fund managers as a group have no true vested interest in outperforming the market. They make a very good living without that. Some mutual fund managers have managed to outperform the market consistently, but if you look at their compensation, is it really all that much more than the others? I can get into the nitty gritty as to why I think mutual fund managers as a group buy securities that they KNOW are not the best choices. But I have been down that road here before and if I am going to do it again it might as well be another thread.

I will say this though (also I am pretty sure I have posted it here before): "If torture and slavery are considered crimes against humanity, how different is deliberately giving bad financial advice or performing a deliberately subpar investing service for people that results in their having to take on menial jobs as they are afflicted with the usual conditions of age. Ever notice the septegenarian greater at Wal-mart who obviously has a touch of arthritis or bursitis?" I see a whole bunch of people all the way up and down the investment industry food chain doing this to people.

[nadreck]

I think that maybe, at its height, half the participants of the TSE thought Nortel was underpriced, but for most stocks, lets say Salter Street Films when I bought it, the overwhelming majority of the market participants must have seen it as over valued or only fairly valued because it only had a thousand or two investors. The fraction of one percent of the market participants who held it obviously felt it was worth more, and of course so did Alliance Atlantis when they bought them out for about 3 times what they were trading at.

Sorry, I don't buy it. The number of investors has no relevance to over- or underpriced, your example is just a small cap stock. Out of all people who cared about Salter Street, at any moment of time about half considered it overvalued and half undervalued.

How can you tell me that on one hand you defend the statement that half the market participants feel one way and half the other then dismiss a stock as not being cared about by the majority of the market participants.

As for the two statements being the same, again we have an irreconcilable philosophical difference of opinion here. I have no comfort level in the ease with which you dismiss any signifigance the vagueries of your own statements and the detailed level at which you examine those of other people.

Again I say that a very large number of market participants care about small cap stocks and a very small number are actually finding significant value in any particular ones.

[adrian2]

First of all Adrian, I wrote in the same post answering that rhetorical question that YOU believed I only had success through luck and that I believed it was a combination of luck and skill.

First of all, I don't know whether it's luck, skill, or a combination.

Secondly, I have explained to the point of severly offending some investment professionals here, that I believe that mutual fund managers as a group have no true vested interest in outperforming the market. They make a very good living without that. Some mutual fund managers have managed to outperform the market consistently, but if you look at their compensation, is it really all that much more than the others? I can get into the nitty gritty as to why I think mutual fund managers as a group buy securities that they KNOW are not the best choices. But I have been down that road here before and if I am going to do it again it might as well be another thread.

Well, that's a new conspiracy theory "mutual fund managers as a group buy securities that they KNOW are not the best choices".

I will say this though (also I am pretty sure I have posted it here before): "If torture and slavery are considered crimes against humanity, how different is deliberately giving bad financial advice or performing a deliberately subpar investing service for people that results in their having to take on menial jobs as they are afflicted with the usual conditions of age. Ever notice the septegenarian greater at Wal-mart who obviously has a touch of arthritis or bursitis?" I see a whole bunch of people all the way up and down the investment industry food chain doing this to people.

That's new too: comparing mutual fund managers and investment advisers with torturers and slave owners. I'm sure Amnesty International would want to hear from you. I'm only curious how any of your proposed alternatives would work for all (or most) investors in a country.

[adrian2]

How can you tell me that on one hand you defend the statement that half the market participants feel one way and half the other then dismiss a stock as not being cared about by the majority of the market participants.

Market participants: people that care about a stock. If you don't care, it means you don't participate.

As for the two statements being the same, again we have an irreconcilable philosophical difference of opinion here. I have no comfort level in the ease with which you dismiss any signifigance the vagueries of your own statements and the detailed level at which you examine those of other people.

I'm sorry you need to go back to grand words and general statements. I've tried even to underline some statements I've made so you won't be confused; it seems it did not work. Please re-read my Tue Sep 06, 2005 9:08 am post.

Again I say that a very large number of market participants care about small cap stocks and a very small number are actually finding significant value in any particular ones.

The fact that there are relatively few stock owners for a specific stock does not prove your point - it may be as well that most of stock market investors don't care about any specific small cap stock you're picking. I did not care about Salter State Films, whether it's overpriced or underpriced. I would venture to guess that the majority of the readers of this thread did not care either.