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Alias Born | 08/12/2011 |
Monday, May 01, 2017 12:37:51 AM
Your quoted points below are flawed.
First, a specific budget amount is irrelevant. The expected value works with any budget.
Second, despite all looming news about the cream sales and other products in the pipeline, you are assuming that you price WILL go down to 0.75 or 0.65. This assumption would be more reasonable if the randomness was at work and the chance of going up was the same as the chance of going down. The chance of stock price going up is much higher. If the stock price does not go to these lows there will not be any profit! It is like I say if price goes to 1 cent at this point I will make the most money but I know it is not gonna happen.
Third, again, your scenario is based on a static model when the parameters of the model don't change (like your 0.75, 0.85 and a specific higher price for calculation)! But, we know we are dealing with a DYNAMIC model when a lurking variable (cream, cancer med, etc.) can make the stock price go up exponentially over a short time even overnight.
Do you understand that one can wait for 0.65 and never get it because of the news about the products in the pipeline! That is what makes this a dynamic model not a static model. In that case, if the probability of reaching 0.65 is zero it means, practically, we can never get a chance to buy it to make a huge amount of money!
Do you understand between a static probabilistic model and a dynamic one? I suggest taking advance statistics courses like Stochastic Processes. It will help.
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