Reflection on the Expected Return
The Model of Financial Asset Pricing (CAPM) provides the proportionality between risk and return, absolutely fundamental expression around the study of finance.
Either way, this concept has permeated the collective consciousness as to the worker knows that if you want higher returns, you must be willing to take much risk.
In other words, we paid for the risk we incur. What is not discussed very often is that performance should get to be properly paid, is merely a mathematical expectation.
And this is where many of us have erred in incorporating this model into our consciousness: “… if I invest is one title that seems quite risky, certainly in the long run will get a good profit …”!
This statement presents the difficulty that we do not know what tomorrow will bring let alone the long term! In this regard, the statement is equivalent to the fable well described by Swami Muktananda in his book “The Mysteries of the Mind” who tells us that:
There once was a poor worker named Sheikh Mahmoud. One day, his employer gave him a clay pot, but full of cream and told to take her to the nearest town.
“If you do,” said the patron, “I give you two rupees. If you drop the pot, you’ll pay the cream.
Sheikh Mahmoud placed the pot on his head and departed. As I walked I began to think: “I’m having two rupees. What will I do with them? ‘.
At that time everything was very cheap. With one rupee, one could buy twenty-five chickens. Sheikh Mahmoud said, “That is, buy chickens. Will multiply, and soon I will have one hundred chickens, five hundred chickens, a thousand chickens, ten thousand chickens. Then sell all the chickens and buy goats. I’ll have goats and sheep and a large farm. Goats and sheep will multiply, and when the band buy goods. I will become a great merchant. Then marry me and I’ll have a house. I will go to an office and come home for lunch. I will have a very good cook will prepare delicious dishes. But if the cook does not have food on time, I get mad and slap. “Des, after all, will be a great merchant.” When he thought of slapping the cook, he raised his arm. As he did this, the pot of cream fell.
So the cream did not reach the other population. Sheikh did not get her two rupees. Do not buy chickens. Did not buy goats and sheep. He never married. He had no home. Did not work in an office. Do not slap anyone. He sat down and put his head in his hands. After a while, again submitted to his boss and confessed:
“Master, I poured the cream. The master replied:
How could you do that? You lost my winnings from the week!
“Oh, master,” Mahmoud said, “you’ve lost the gains for the week, but I’ve lost my chickens, my goats, my home, my wife, my office and my cook!
Moral: the desires, hopes and greed can play us nasty games!
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