Why extreme values matter so much on the stock market
The average return on equities is reassuring: over the long run, it is positive. An average is something you observe, not something you earn: investors earn the sequence of returns, extreme days included. Those days are far more frequent than the normal distribution implies.
This workshop shows it with data on the S&P 500 since 1928, US Treasury bills since 1960, and gold and silver since 2004 and 2006 respectively. At each step, you read or work with a chart, then check your understanding with multiple-choice questions and an answer key that explains the reasoning.
Who this tool is for
- Participants in the Portfolio management course who want to see risk in the data rather than in a formula.
- Finance students working on volatility, the normal distribution and its limits.
- Investors who want to understand what a few missed trading days cost and what the investment horizon changes.
How the tool works
- Set the average return against the individual years, then the bell curve of the normal distribution against every trading day since 1928.
- Spot the 50 worst and the 50 best days, then measure what happens to an investment that misses the best or the worst days.
- Compare how often sharp falls were observed with how often the normal distribution predicts them, for the S&P 500, gold and silver.
- Compare equities and US Treasury bills across investment horizons, then review your answers.
Frequently asked questions
Where do the data come from?
From Yahoo Finance: the S&P 500 (^GSPC) for every trading day since 1928, excluding dividends; 3-month US Treasury bills (^IRX) since 1960; gold and silver through the GLD and SLV ETFs, since 2004 and 2006 respectively. Before 1950, the S&P 500 series contains a few questionable days, which the workshop flags.
How do I get access?
Access to the workshop is password-protected, with the same password as the Advanced Portfolio Management Simulator. SAGORA provides the password, in particular as part of the Portfolio management course. Write to us at formations@sagora.eu.
Do I need any prior knowledge?
Knowing what a mean and a standard deviation are is enough: each step reminds you what these measures capture and each answer key explains the mechanism at work.
The workshop shows risk in the data; the course teaches the method. Three days to move from concepts to an allocation that holds up over time.
Portfolio management course