Template:M intro design System redundancy: Difference between revisions

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→‎Glass half full and multidimensionality

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 Here is where history — real history , not the synthetic history afforded by data modernism — makes a difference.
-For we might say the realistic range a stock can move in in a liquidity period — its “gap risk” — is relatively stable. Say 30 percent of its market value.  This value we derive from a few technical and fundamental things: the fundamental book value of a business, the presumption that there is a sensible bid and ask, so that the stock will oscillate around its “true value”. What that is you can derived from a sufficiently long observation period (the more illiquid, the longer you need, as the bulls and the bears must iron each other out).
+When it is at rest, the realistic range in which a stock can move in a liquidity period — its “gap risk” — is relatively stable. Say, 30 percent of its [[market value]].  (This [[market value]] we derive from technical and fundamental readings: the business ’s book value, the presumption that there is a sensible [[bid]] and [[ask]], so that the stock will oscillate around its “true value” as bulls and bears cancel each other out.
+But, because it is assembled from static snapshots which don't move and therefore carry ''no'' intrinsic risk, [[data modernism]] is not good at estimating how long a risk period should be. Each snapshot is a still life in which a “[[glass half full]]” and a “[[glass half empty]]” look alike.
+We apply the our risk tools to them as if they were the same: ''assuming the market value is fair, how much could I lose in the time it would realistically take me to sell''?  30 percent, right?
+But they are ''not'' the same.
+If my stock trades at 200 today, it makes a difference that it traded at 100 yesterday, 50 the day before that, and over the last ten years it has traded in a range between 25 and 35. This history tells us this glass is massively, catastrophically over-full. With that history might think a drop of 30pc is our best case scenario
-But modernist techniques are not good at estimating that period. Their optimal period, remember, is infinitesimal. A still life. In a still life, a glass half full and a glass half empty look exactly alike. We apply the same metric to them: ''assuming the market value is fair, how much could I lose in the time it would realistically take me to sell''?  30 percent, right?
 ====Liquidity period - how long is your risk period====
 ====Snapshots of a glass half full are a bad proxy====