AI
Wednesday, September 04, 2002 5:09:44 PM
Hi Jibes,
How is the long term average derived?
The usual way!!!
Seriously, it's the sum of the entire history divided by the number of entries. Simple. Average is about 41% for the life of the IW from 1982 through the present. So, with this week's "25" reading, we'd be subtracting sixteen from the historical cumulative sum.
It's easy to see the long term rising risk trend in the early part of the graph. It's also pretty evident that we've been in a flattish risk area with some cycles in more recent times.
Maybe the early part of the graph could be labeled "bubble forming" and now "bubble leaking." Certainly not "bubble deflating."
Some historical perspective might be in order.
Here's the Long Term Idiot
In 1987 the market risk had been rising to an unprecedented level and then collapsed back near zero. In 1990 with the Gulf War, it fell very low with the fear that was brought on. In 2000 and since, it's flattened out but never really retreated very much. This does concern me.
It appears we're going to have to stay well below the long term IW average for a very long time to make the Abs. Idiot fall very far. The total value isn't really of any significance, it's only the direction of the line (the slope) that matters. In recent times, since the peak in 2000, the slope has been very close to zero.
Maybe it says we were "absolute idiots" to have any money in the market during 1999 and 2000!
Hope this helps,
Tom
PS: I've just noted that the scales are a bit off for the two graphs. I'll have to check the data bases. The graphs are generated from two different bases. I'll make sure the calculations are correct. The trends look right, but the values look off.
How is the long term average derived?
The usual way!!!
Seriously, it's the sum of the entire history divided by the number of entries. Simple. Average is about 41% for the life of the IW from 1982 through the present. So, with this week's "25" reading, we'd be subtracting sixteen from the historical cumulative sum.
It's easy to see the long term rising risk trend in the early part of the graph. It's also pretty evident that we've been in a flattish risk area with some cycles in more recent times.
Maybe the early part of the graph could be labeled "bubble forming" and now "bubble leaking." Certainly not "bubble deflating."
Some historical perspective might be in order.
Here's the Long Term Idiot
In 1987 the market risk had been rising to an unprecedented level and then collapsed back near zero. In 1990 with the Gulf War, it fell very low with the fear that was brought on. In 2000 and since, it's flattened out but never really retreated very much. This does concern me.
It appears we're going to have to stay well below the long term IW average for a very long time to make the Abs. Idiot fall very far. The total value isn't really of any significance, it's only the direction of the line (the slope) that matters. In recent times, since the peak in 2000, the slope has been very close to zero.
Maybe it says we were "absolute idiots" to have any money in the market during 1999 and 2000!
Hope this helps,
Tom
PS: I've just noted that the scales are a bit off for the two graphs. I'll have to check the data bases. The graphs are generated from two different bases. I'll make sure the calculations are correct. The trends look right, but the values look off.
Port Washington, WI 53074
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