Twitter Poll #Poll2Learn : 2

Every option again correct, it defined your risk-taking ability attitude.

Nothing wrong in option "90% chance of 10% CAGR" which was chosen by the majority. But if I have provided another option of "98% chance of 8.5% CAGR" then the same investors might have chosen this instead of earlier one. It might be returns on EPF or PPF. All option return more or less same but Mathematically, 25% chance of 10 times returned would have more return. My motive was not to test your mathematical skill but to self asses our own risk profile.

The equity market is a game of probability and uncertainty. If you have chosen the stock market then I can't satisfied with a return equivalent to safe investment, if I have taken the risk then my reward should also be adjusted accordingly. But, my point is also not to go with "25% chance of 10 times", choose whatever your risk profile and stock market knowledge confidence indicate.

My point is the stock market is a game of probability and uncertainty. Investors should love uncertainty and that is possible only if one doesn't need invested money immediately.

Let's assume one has chosen "50% chance of 20% CAGR" then he should have hawk-eye with patience on the stock market and his stock watch list. If that person gets an opportunity where he comfortably feels it is either "80% chance of 20% CAGR" or "50% chance of 30% CAGR" then he should attack it. It is very easy to say here but really difficult unless one has required knowledge of the stock market.

Only for just illustration purpose, no recommendation, one has Tata Elxsi Ltd in the watchlist of "50% chance of 20% CAGR". If Tata Elxsi gives bad result for next 2-3 quarter and the overall market is in bear market trajectory (especially the auto industry) then the market will give a valuation of the cyclic industry to it. It may go down even below 450. You know 1/3 rd of revenue comes from the auto industry but somehow you do analysis and believe that this dependency is going to be reduced drastically then you can recalculate probability and CAGR to true intrinsic value for long term. If it offers a margin of safety also then one can attack it, but one should have confidence in his analysis.

I prefer portfolio creation with all 4 options in it . Some are risky bets and some are safe .