STE's Stocks Investing Journey

We know that market move in cycles and in upwards trend in the long run, for the past 200 years. If you stretch the investment time horizon to a much longer period, you will see that every crisis was just a " blip "  in time. Image credit to: stockmarketalmanac.co.uk.com> Every crisis, be it caused by war, oil crisis, financial (sub-prime) or even current crisis of COVID 19 will pass eventually. Some companies may collapse during the crisis (even a 100 years old company), therefore it is important to have a diversified portfolio with fundamentally strong companies.

image credit to trumpexcel.com According to “ Fama & French Forum: “ Distributions of daily and monthly stock returns are rather symmetric about their means, but the tails are fatter (i.e., there are more outliers) than would be expected with normal distributions. (This topic takes up half of Eugene F. Fama's 1964 PhD thesis. Eugene Fama is the 2013 Nobel laureate in economic sciences )  In the old literature on this issue, the popular alternatives to the normal distributions were non-normal symmetric stable distributions (which are fat-tailed relative to the normal ) and t-distributions with low degrees of freedom (which are also fat-tailed). The message for investors is: expect extreme returns, negative as well as positive. “