Archives of “Actuarial science” tag

rss

India:A Downhill Slide

  
Analysis, Education
#  #  #  #
After recording a higher-than-average (i.e. >3.2%) growth rate in three of the last four years (FY11-14), rural economic growth stepped off the pedal in FY15 and rural consumption looks increasingly likely to remain subdued through FY16 with: a) government measures to curb inflation by lowering wages growth and crop MSPs (minimum support prices); and b) unseasonal heavy rainfall in early 2015 and forecasts of a consecutive year of weak monsoon further clouding the outlook.  
State of the Agricultural households: Agriculture sector GDP grew at a tepid 1.1% in FY15, as per initial government estimates. With monsoon rainfall coming in 12% below average in 2014 and unseasonal rainfall in early 2015 causing crop damage on up to 8-10mn hectares of cultivation (4-5% of total cropped area in India), rural consumption will likely remain weak in the medium term. Our analysis of NSSO survey data on the state of rural agriculture households over the past decade reveals little structural progress has been achieved – although income (12% CAGR) and fixed capital spending (15% CAGR) have increased impressively, structural issues persist because monsoon-dependent farming remains the principal source of income, improvement in institutional credit penetration has been weak and a lack of awareness of modern agricultural practices is pervasive. Legislative agenda progressing: 

(more…)

Every 8 Years, Your Chances of Dying Double

  
Analysis, Education, Life
#  #  #  #  #  #  #  #  #  #  #

Robert Krulwich revisits the mysterious but true Gompertz Law of Human Mortality, named for the British actuary who had originally discovered this mathematical fact back in 1825.

via NPR:

Obviously, when you’re young (and past the extra-risky years of early childhood), the chances of dying in the coming year are minuscule — roughly 1 in 3,000 for 25-year-olds. (This is a group average, of course.)
But eight years later, the tables said, the odds will roughly double.  ”When I’m 33 [the chances of my dying that year] will be about 1 in 1,500.”
And eight years after that…the odds double again: “It will be about 1 in 750.”
And eight years later, there’s another doubling. Looking down the chart, you’ll see that keeps happening and happening and happening. “Your probability of dying during a given year doubles every eight years.”

A helpful, if horrifying, chart:

death chart

Sviokla & Cohen, The Self-Made Billionaire Effect- Book Review

  
  Education
#  #  #  #  #  #  #

self

Becoming a millionaire, even a multimillionaire is not all that extraordinary, becoming a billionaire is. What do self-made billionaires (and there are about 800 of them in the world) have that the rest of us don’t? John Sviokla and Mitch Cohen tackle this question in The Self-Made Billionaire Effect: How Extreme Producers Create Massive Value (Portfolio / Penguin, 2014).

These billionaires (or Producers, as the authors call them) may be wired differently. They certainly think differently. They balance judgment and imaginative vision, a daunting mental task since “for most people, judgment and imagination sit on opposite ends of a mental spectrum. The more skilled one is at seeing things as they are (judgment) the harder it is to see things as they might be (imagination).“ (p. 4) Not only do they “revel in bringing clashing elements together,” “they seamlessly hold on to multiple ideas, multiple perspectives, and multiple scales.” (pp. 16, 15)

Since they “cannot predict the exact time to make an investment, … they are willing to operate simultaneously at multiple speeds and time frames. They accept that timing is not under their control, and so they work fast, slow, super slow, or in all these modes at the same time. They urgently prepare to seize an opportunity but patiently wait for that opportunity to fully emerge.” (p. 19)

(more…)

“The goal of a successful trader is to make the best trades. Money is secondary.”

  
  Education
#  #  #  #  #  #  #

==== Money is secondary? What the hell? Is Alexander joking?

Well, if we take some time and analyse this quote, Mr Elder has a very important point to make. How can good trades be better than money ? Why are we indoctrinated to think that money is the primary goal?

Don’t worry I was subject to this way of thinking for a long time but realized it has huge fundamental  issues. The problem is that anyone can have a great trade, a lucky trade, a momentum trade, but the question is, can you replicate this performance in the future in the long term?
I repeat, can you replicate this trade in 10 years time?

Lets think soccer, is it more important to score a goal every match or to have a system of playing the game to have high probability of scoring opportunities?

Do you prefer to have one perfect trade or many high probability trades?

If you are in this for the long term, focusing on making the highest probability trades possible is a more sustainable way for a future success. If you spend time in analyzing your entries, exits, risk management on a consistent level, you have a higher probability of achieving your goal.

Universal Lessons

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #

What follows are some of the most well-known investment disciplines along with a lesson or two from each that every investor should be able to use in their own strategy.

Focused Value Investing: Buying stocks that are underpriced in relation to their intrinsic value.
Lesson(s): It’s important to invest from the perspective that stocks represent an ownership interest in a business. You get your share of corporate profits from the stocks you own and over the long-term the value of the business should be reflected in the stock price.

Quantitative Investing: Using a systematic, mathematical approach to make buy and sell decisions within a portfolio.
Lesson(s): A rules-based, objective approach to investing is a great way to take out the emotions which can trip up so many investors and introduce biases into the investment process. Automating good decisions can reduce costly mistakes.

Technical Analysis: Studying charts, past prices and volume for security and market analysis by using patterns.
Lesson(s): An understanding of the history of the financial markets is extremely important to be able to define your tolerance for risk and gain the correct perspective on what couldhappen in terms of gains and losses. And at the end of the day markets rise and fall because of supply and demand.

Index Investing: Owning the entire market/index at a low cost.
Lesson(s): Beating the market is hard. Keeping your expenses, activity and turnover to a minimum is a prudent way to earn your fair share of the market’s return over time. (more…)

15 Biggest Insurance Claims in Modern History

  
Analysis, Education
#  #  #  #  #  #  #
Biggest Insurance Claims

15. Most-Expensive Pet

The most-expensive claim stood at $22,000 and it was in 2010 for feline renal surgery. Apparently, the pet as not a pedigree feline, but just a good-old gutter cat that somebody had decided to insure.

14. Rowan Atkinson

The British actor that is famous for his role as Mr. Bean had the most expensive automobile-insurance claim in history. The actor crashed his £640,000 McLaren F1, resulting in a payout by his insurance company for £900,000 in repairs. The insurance company had agreed to pay out that much since the price of that car had risen to in the region of £3.5 million when the accident happened in 2011. Prior to this, the highest payout by an insurance company for a car had stood at just over £300,000.

13. Bugatti Veyron

In 2007, engineers crashed 2 Bugatti Veyrons while running tests for a prototype. Each of the vehicles was worth over $800,000.

12. Ice Slip 

In 2012 in Virginia one winter a resident of an apartment building went outside and slipped on the ice and the snow. A few bones were broken in the resident’s legs and complications led to the person being amputated of their lower legs. The claim was settled for a payout in compensation of $7.75 million because the landlord of the building had failed to clear the ice and snow in front of the building. He was therefore held responsible and it stands as the highest payout. (more…)

Rules for handling risk are..

  
  Education
#  #  #  #  #  #

Image result for RISK· Gather as much information as possible before entering any risk.
· Get a toe wet first, if possible, before the final plunge.
· Risks alone are more valuable than when shoaled with others.
· During the peak moments of risk constantly evaluate and reevaluate.
· Always have a backup plan.
· Always have an exit.
· When in doubt, be bold.

Whatever your brand of risk, these guidelines will keep you afloat to take another, and another, through the discovery of self.

7 Basic Truths of Trading

  
  Education
#  #  #  #  #  #  #  #  #
  1. Well-defined objectives. Are you trying to beat a certain return hurdle, like inflation or an index? Are you trying to generate 5% or 50% returns per year? You have to understand what you are trying to do and then bend your investment process around it. The other way around isn’t possible.
  2. An understanding of the markets that you will be operating in. Stick to what you know. Narrow your focus so as to make the most of your efforts. You need to know everything about the markets where you’re taking positions.
  3.  A clearly defined methodology for getting into and out of positions. This includes which indicators, news items, fundamental data points you look at and when you take action. This is your checklist—you should have it so well defined that you can be sure of the exact steps along the way. You need a game plan so that you stay consistent and disciplined and don’t get flustered under pressure. It should become automatic and engrained.
  4. This methodology must utilize your strengths and skills and suit your personality. A cerebral, research-driven economist should put that to work, instead of becoming a swing trader based on technical analysis. An adrenaline-fueled athlete should be an intraday trader, not be a long-term trend follower. Remember, every successful trader has a methodology of their own which plays to their strengths and their personality.
  5. This methodology has a positive statistical expectancy– the gains from winners more than outweigh the losses on losing trades. Use your own statistics and the Kelly Formula for a rough guide as to whether or not you have positive statistical expectancy.  On average you want to expect to win on an individual trade, meaning that your expected wins outweigh your prospective losses. That doesn’t guarantee that you will actually profit on each trade, it just means that over a sufficiently large quantity of trades, you will come out ahead.
  6. A well-stated risk management policy for when you get out of losing positions and how you manage risk overall. Cut losers. Let winners ride.  Many people have tried to overthink this rule and ended up losing as a result. Furthermore, you never want to put yourself in a position where you can blow up, so you need to be thinking how you can avoid taking excessive risk in the first place. Just remember Warren Buffett’s Two Rules:A framework for sizing positions. This is related to risk management— obviously, you don’t want to take a position that’s over a certain size, ever. But you may also want to size positions according to certain specific critieria, such as your conviction in the position or volatility in the market. Or they could all be the same size. Nonetheless, your methodology has to be able to address it and come up with a well-reasoned answer.
    1. Never Lose Money.
    2. Never Forget Rule #1.

A Few Things About Risk

  
  Education
#  #  #  #  #  #

People have an amazing ability to discount risks that threaten their livelihood. That’s dangerous because people who should be the most experienced experts in a field may be the least able to objectively assess their industry.

Risk has a lot to do with culture. Europeans and Canadians are generally wary of the stock market. For Americans, it’s a pastime. The French prefer raw milk. Americans are warned against it. Canadians are banned from it. Europeans are terrified of nuclear exposure. Americans couldn’t care less. Walk through an international airport and you’ll see one person wearing a face mask to prevent the spread of illness and another letting their kid crawl on the floor. Everyone wants to believe they’re thinking objectively, but most of the time you’re just reflecting the cultural norms of where you were born.

Success is an underrated risk. Jason Zweig once wrote: “Being right is the enemy of staying right — partly because it makes you overconfident, even more importantly because it leads you to forget the way the world works.”

Risk’s greatest fuels are debt, overconfidence, impatience, a lack of options, and government subsidies. 

Its greatest enemies are humility, room for error, and government subsidies.

Nothing in the world can give a damn less than risk. Risk doesn’t care about your political views or your morals. It doesn’t care what your view of the market is, or what you were taught in school. It’s an indiscriminate assassin and a master at humbling ideologies.

(more…)

Go to top