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This much is true: consumption is always more resilient than investment, & this is especially true for poorer countries & those with very favorable demographic transitions.
Alas, growth in Asia has slowed. That said, investment is weakening by much more than private spending🤗.
Alas, growth in Asia has slowed. That said, investment is weakening by much more than private spending🤗.
A chart like this w/ the blue line (investment) moving more than consumption shows that INVESTMENT has a HIGHER VARIANCE - another way of saying more spread out/VOLATILE. The square root of the variance is the standard deviation. Math: The ave of the squared diff from the mean🤗
How do u explain variance to a child: The puppies don't vary much & can calculate exactly their height variance: take an average height, then we get a the square diff sum of each puppy:
((left🐩- ave)*^2 + (middle - ave)^2 + (right - ave)^2))
After that, divide by 3 (#ofpuppies)
((left🐩- ave)*^2 + (middle - ave)^2 + (right - ave)^2))
After that, divide by 3 (#ofpuppies)
After show such a low variance group of puppies 🐩🐩🐩, then show a child these puppies - they have a HIGH VARIANCE in height, which just means each dog varies greatly from the average. How varied you ask, well here is the math👇🏻
The standard deviation is the square root.
The standard deviation is the square root.
Okay, u're like, well, how do u make money from such elementary knowledge. Actually, no. Understanding intuitively the variance'S key to a lot of finance. The concept of standard deviation is key to calculation of probability.
Below is the standard deviation of GLOBAL EQUITIES👇🏻
Below is the standard deviation of GLOBAL EQUITIES👇🏻
Actually, let me rephrase: the above is the standard deviation of price/earning ratios of global equities. What do you notice?
a) EM (Brazil & Argentina esp) ALL OVER THE PLACE, which means LOW CHANCE TO MEAN REVERT. Standard deviation the highest so very volatile;
b) SPX low std
a) EM (Brazil & Argentina esp) ALL OVER THE PLACE, which means LOW CHANCE TO MEAN REVERT. Standard deviation the highest so very volatile;
b) SPX low std
The time horizon of this is since 2006 & it is daily data so enough sample size to go on to assess.
Once u understand variance/standard deviation & its meaning (not just typing into excel & get a random value & not knowing how to interpret), then it has investment implications🤗
Once u understand variance/standard deviation & its meaning (not just typing into excel & get a random value & not knowing how to interpret), then it has investment implications🤗
What is the investment implication in this case? Well, simple, if u want to punt & make/lose quick bucks, go w/ a more volatile index. If u time it right, u can get a huge return quickly (or lose very quickly too). But if u want to PROTECT CAPITAL long-term, go w/ LOW VARIANCE🤗
The same can be said about dating/finding a partner in life 😉, unless high volatility is your kind of thing. Different strokes for different folks...
