THE ACCOUNTANT_AUTUMN_2018_VER-7-L

TECHNICAL
Is this perhaps the right time to invest in Apple stock?
just around the corner, enticing
you to jump ship into the new
glitzy stock!
A quick look at stock price chart above shows
you that, had you invested money two years ago, you
would have bought 1 unit of stock at roughly $96 and
today it would be worth roughly $184. That’s more
than a 100% increase, meaning your money would
have more than doubled in just two years! Which
bank, secure as it may be, can come even close to
these kinds of return?
It seems like a no brainer: you like the company’s
strategy, returns have been exceptional, and the
alternatives pale in comparison. Unfortunately, at
this point, many would simply phone their broker (or
log in their online platform) and order some Apple
stock without digging deeper into what’s beneath
the hood. And this is fine, because it is your money
after all. It could turn out great and you triple your
savings in a few years. But if you are fund manager,
you are managing other people’s savings, and
your profession requires that you look under the
hood — and thoroughly — else you may be liable to
misappropriation and mishandling with long years
behind bars.
Any stock climbing up a mountain might find
the route a bit choppy and the amateur may run
into a number of disappointments. Mathematics
will not completely avoid these disappointments,
but it will tell you how likely these disappointments
are going to be and if they can be so severe as to
wipe away a substantial share of your original savings
even before you actually start seeing some positive
results. You might tell me “that’s absolutely fine for
me: I am a patient person and can take a few hits on
the way to success.” My answer, having studied the
psychology behind investing money, is very simple:
Never, ever underestimate your potential to make
quick, irrational decisions; especially if things are not
going your way for a long period of time and there
are some super attractive alternative investments
Shape
It is clear that we need more
information than simply looking
at prices and reading about the
company’s plans for the future.
The second big question (and
by far the most important
one) is this: What is my risk?
Even though there are long
and technical answers to that
question, I am going to try and give you the gist of
what one can do with some very simple mathematical
tools learned during a sound degree in finance.
Normal Distribtution with Mean 30 and Standard Deviation 10
We need some forecasting tools: something
that will tell me “The return on your investment can
be in the range of x to y % with this likelihood. The
most important piece of machinery that you will be
learning about in this course is our dear old Normal
Distribution, pictured below.
Apple Daily Return Probabilities
This famous bell shaped can be found everywhere:
biology, economics, finance, physics etc. It tells you,
in a nutshell, that numbers around the average are
the most likely and everything else is symmetrical
around it.
Applying the normal distribution to my analysis of
Apple Corp stock, I could have a road map telling how
likely or unlikely certain gains and losses are in the
future, based on past performance. Quite neat! Let’s
26 Autumn 2018