The fallacy of Mean/Variance indicators.

I’d like to present a lesson by professor Ruggero Bertelli on the subject of deterministic statistical indicators as they compare to classic indicators of mean and variance. LET’S SEE IT IN ACTIONAssuming we have an investment that in the first year earned 10%, the following year lost 10%, the third year earned another 10% and the fourth year lost 10%, what would be the return on investment at the end of the four years? THINK ABOUT YOUR ANSWER BEFORE YOU KEEP READINGIf your answer was zero, perhaps you forgot that returns are not linear, and losses are not equal to the returns necessary to recover them. If I’ve lost 50%, to return to the initial value I would have to earn 100%. If I lost 10%, to get even, I’d have to make almost 11% back, as you can see from the image below. At the four-year mark, I’d find

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