Since we can't predict the future (and gazing at the past can be misleading !!), we can do this in order to see what may happen:

1. Gather a whole bunch of yearly returns for some asset ... or weekly or monthly or whatever.
   Assume they "characterize" the stock, representing possible future returns for that particular stock.
2. Start with some portfolio, say $1000.
3. Pick a return at random from the collection of returns.
4. Apply that return to your portfolio.
5. Repeat steps 3 and 4 say 10 times and note the final portfolio value.
6. Repeat steps 2, 3, 4 and 5 umpteen times.
7. Look at the distribution of portfolios after 10 years ... or weeks or months or whatever.

>And that'll tell you what you might expect, after 10 years? Well, it'll give some inkling of what may happen ... but you'll get so many possible future scenarios it ain't possible to predict what might actually happen after 10 years. See the picture? That's using annual returns for the S&P500 from 1928 to 2000 ... picked at random (as in step 3, above). We start with a $1000 portfolio and, 30 times, we do steps 2 to 5 to see what "final" portfolios might look like in 10 years. See the variability? The "average" final portolio is shown in red ... but don't count on it! This procedure, simulating possible futures by selecting random returns, is called Monte Carlo simulation. >And it'll tell you what might happen ... in the future? Not exactly. It'll give you some idea of the variability of future portfolios. You can change the asset from the S&P500 to, say GE or some mutual fund or whatever ... and it'll provide some insight into what could happen ... but don't count on it!   (See Poor Joe)

>Don't count on it? Then what can I count on?
Well, let's see ... you can certainly count on this.

See:

• a MC spreadsheet
• Monte Carlo for 2 stocks
• MC Predictions (?)
• MC with what returns?
• Monte Carlo investing
• Monte Carlo consistency
• more MC stuff

to continue