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Showing posts with the label Fat Tail Effect

What is the Consumer Price Index (CPI)?

What is the Consumer Price Index(CPI)? The Consumer Price Index (CPI) is a measure of the change in prices paid by consumers for a basket of goods and services. It is one of the most widely followed economic indicators, and it is used by investors to gauge inflation and make investment decisions. How is the CPI calculated? The CPI is calculated by the Bureau of Labor Statistics (BLS). The BLS surveys households across the United States to collect data on the prices they pay for goods and services. This data is then used to create a "basket" of goods and services that represents the spending habits of the average American household. The BLS calculates the CPI by comparing the prices in the basket of goods and services in a given month to the prices in the same basket of goods and services in a base year. The base year is usually 2000. How does the CPI affect investing? The CPI is an important indicator of inflation. When the CPI rises, it means that the cost of living is incre
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Investing Habits of Individual Investors and the Fat Tail Effect

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Locking in 5-10%: a common habit of retail investors There's a common investment habit among retail investors: locking in profits when returns reach 5-10%. It's an instinctive reaction to avoid further risk and play it safe when you're guaranteed a return above the bank rate. However, this behavior is not always correct, as it violates the principle of "going long on profits and short on losses." This habit can lead to small profits and large losses. Regret after you've locked in your profits If you decide to sell when you reach 5-10% profit, and the stock price rises further afterward, you'll be left with a lot of regret and remorse. Especially if the stock price continues to rise after you've locked in your profits, reaching over 100% above the price you sold at, you'll be shocked. In this situation, investors often end up buying back at the peak, and end up losing a lot of money. To avoid this pattern, you need to understand the concept of the &
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