Investing in FAANG Stocks: Should You Expect Unexpected Returns?

by: Kenneth French, PhD
Director and Consultant

Investment returns have two parts: the expected return and the unexpected return. The expected return is the best guess of what will happen based on all the information currently available. The unexpected return is the surprise, the difference between what does happen and what was expected. Investors should base their portfolio decisions on expected future returns, not recent realized returns, and the two can differ by a lot.
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Weathering the stock market during all times

A Taoist story tells of an old man who accidentally fell into the river rapids leading to a high and dangerous waterfall. Onlookers feared for his life. Miraculously, he came out alive and unharmed downstream at the bottom of the falls. People asked him how he managed to survive.
“I accommodated myself to the water, not the water to me. Without thinking, I allowed myself to be shaped by it. Plunging into the swirl, I came out with the swirl. This is how I survived.”(1)

Code Name: Monte Carlo

By Sheldon P. McFarland

What do you get when you assemble a dozen or so of nuclear science’s greatest minds, give them access to the world’s first electronic general-purpose digital computer, and spend $2 billion during the height of World War II? An atomic bomb of course, and a sophisticated simulation technique code-named Monte Carlo. Monte Carlo simulation was developed by scientists working on the Manhattan Project to predict the explosive behavior of the various atomic weapons they were constructing. Since then, researchers have successfully applied it to a vast number of scientific problems. Today, and many evolutions later, we use it to model the validity of your financial life plan.

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