Bookmarks for March 19th through March 25th
Bookmarks for February 26th from 15:32 to 22:53
Excel Flashcard Quizzer
I’ve started studying spanish again, and to help in my studies, I devised an excel workbook to track vocabulary.
Although it is currently populated with Spanish vocabulary, it can easily be adapted to quiz you on anything you would use flashcards to learn.
It’s quite simple:
If you’re interested in using this approach, you might want to read this webpage – It is full of great language resources.
Hopefully you can find some use for this little tool. In addition to helping you in the language you’re learning, it would be great for those CFA LOS statements.
Excel Quizzer (2491)Personal Finance and Simulation Modeling
CFA studying can be tough, and sometimes you need to take a break; During one of my study breaks, I came up with a Monte Carlo model to estimate my (or your) future net worth. In this posting I explore that model, and take you on a journey of personal finance wonderment.
A Monte Carlo simulation (at least in my model) works by generating random numbers that act as inputs into a predefined model (with appropriate assumptions). Each time the model is taken through an iteration, a different result will occur, driven by these random inputs. When the model is run multiple times, you are able to determine the probabilities that certain outcomes will occur.
Below you can see the results of several of the iterations in my model[kml_flashembed movie="http://simran.crownpac.net/blog/wp-content/uploads/2006/08/iterationgraph1.swf" height="230" width="450" wmode="transparent" /]
As mentioned above, each iteration is driven by both inputs and assumptions. The inputs for my model were the return on equity for each of the 40+ years, while the assumptions used are listed below (and are fairly realistic):
As you can see, the results from each iteration appear unique. Although you can anecdotally get a sense of what you might expect to be worth by watching each iteration, the real insight comes when you start to produce a histogram (all values are shown in today’s dollars):
Probability of Net Worth at Age Seventy
Interpreting this graph, you can see that you will have a 1% likelihood of being worth $0-$2M, and a 19% chance of being worth $5M-10M. Notice that despite our assumption of a normal distribution of annual returns, the expected value of the portfolio is positively skewed: There are a greater number of very high results, and the most expected result is lower than the average.
What I find more useful than the histogram, however, are the cumulative probabilities as shown below. Interpreting the following graph, you can see that at age 70 (and with no debt in the portfolio), there is an 80% chance you’ll be worth at least $2M-5M, and a 12% chance of being worth at least $12M-15M.
[kml_flashembed movie="http://simran.crownpac.net/blog/wp-content/uploads/2006/08/leverage1.swf" height="250" width="450" wmode="transparent" /]
As with any model, the fun part comes when you play with the assumptions. I’ve included some buttons on the above graph to facilitate your play: you can choose the leverage scenario for the portfolio, and see the impact it has on the cumulative probabilities.
Notice that as you increase the debt level, your likelihood of being very rich increases, while the likelihood of being worth less remains the same? Debt in your portfolio, over the long term, is a good thing.
The graph above shows only the upside of increased leverage. There are, of course, downsides that will ultimately determine the optimal balance of debt and equity for your portfolio. What are the constraints that should limit debt exposure and determine your optimal capital structure? read away:
There are many more variations we can build off of this model. For instance, if you where interested how soon you could expect to be worth $5,000,000, you could use the following graph:
With a little bit of work, we could also examine:
Whatever you are interested in, the model can be built to examine your needs.
Despite the long post, this is a relatively brief look at what these kinds of models can do for you. Some takeaways:
I hope you found this long and flashy post interesting. Let me know if you have any comments or questions.
Spam and OpenSource
This site has been getting slammed by Spam over the last week or so, with up to 120 Spam comments being posted per day. My inbox was overflowing, so I had to make some changes.
Comments are now improved. There is no moderation, and they will be posted as soon as they are submitted – the catch is that you have to enter a small code before it will be accepted. A small price to pay, no? The comments on the daily links section, however, have been temporarily suspended. Because of the coding I’ve used on that section, they’ll have to be upgraded at a later time.
The blogging system I use for this site is WordPress, and it has been an excellent choice. Since I switched over form greymatter about a year ago, the community has grown exponentially, and it has become the new leader in blogging tools. One of the great benefits is that it is opensource – anybody can look at the code, and make improvements, and the best improvements get included in the next versions of the software. In putting the site together, I’ve definately “stood on the shoulders of giants”. Mixing and matching different techniques, and using it as a learning tool.
WordPress has been a great learning tool, but blogging definately isn’t for everybody (if you want to start playing around with it, let me know – and I’ll direct you to some more resources). There are , however, some great new opensource programs that I’m anybody could love.
Mozilla Firefox
I’ve meant to mention this a long time ago, but have never got around to it. This is a replacement for Internet Explorer (IE), and it has been getting tons of press lately.
If you’re not sure what Internet explorer is, I’ll provide a quick analogy. First off, both IE and Firefox are web browsers. What is a web browser? it is the way to get websites off the internet. A web browser is to the internet, what a TV is to the TV Channels.
So, according to this analogy, your favorite search engine, google.com, is analagous to your favorite televistion station, FOX TV – Meanwhile your old browser, IE, is analagous to that old hitachi black and white TV your grandma had. If you’re ready to step up to the world of high definition, you’ve got to see Firefox – It’s the internet’s version of a 50 inch LCD flatplanet wide-screen HDTV.
With Firefox, there are tons of great plugins that you can use to customize your browsing. I’ll give you an example of how I’ve used mine. I’ve been trying to practise my spanish lately, and while I’m reading spanish website, I occasionally come to a word I don’t know. With the Conquery Firefox plugin, all I do is select the text, right-click, and a separate window (or tab) will open up with an english translation of the word – and this works on any website.
Here’s a list of some the other plugins I’ve been using:
Here are some key built in features that make switching worthwhile: tabbed browsing, live bookmarks, faster load times, built-in pop-up blocking, no more spyware, customizable themes.
I’ve been using it since version 0.6 – it’s now at 1.0 and is definately ready for mass adoption.
Mozilla Thunderbird
Thunderbird is an Email client, News reader, and RSS reader all in one.
It’s currently at version .9 and is slightly less polished than it’s cousin Firefox – Nonetheless, I’m very impressed with the progress the program has made.
It is the best free RSS reader I’ve found – and does a great job of integrated mail, news and RSS together. If there was an integrated calendar, and pocketPC sync support (my old axim X5), I would have no hesitation switching from Outlook (I use Lotus Notes at work, but that is another story).
The last time I used thunderbird I was dissappointed. The interface was not at the level I was expected, and it was missing some key features – like integrated RSS. The latest version has surpassed my expectations, and surprisingly, I prefer the interface to Outlooks – They have even added the mail grouping function I love so much.
Bottom line is that if you don’t use calendar, and don’t have a pocketpc (I think palm is OK) – you’ve got the see Thunderbird.
