This meeting, Nathan gave a presentation on interest and discount rates.
Nathan talked about mental framework and how money now is worth more than possible money tomorrow. By taking risks today we expect more in return tomorrow.
The reason money compounds is because opportunity cost and uncertainty compound overtime thus static capital must be exponentially rewarded.
Nathan also talked about the similarities between discount and interest.
Both rates are expressed by percentage and it’s the matter of the vector in time you are moving.
The club talked about the rule of 72 and methods for estimating the amount of time for an investment to double as well as Pascal’s triangle and exponential branching to understand probabilities for different stock market returns.
Nathan talked about “unknown unknown” or black swan events and how the market doesn’t price in unknown unknown’s.
Nathan also talked about the Capital Asset Pricing Model (CAPM) and the Monte Carlo Simulation. CAPM is a model that creates a linear relationship between the required return on an investment and risk that comes with it. The Monte Carlo simulation is a simulation to model a range of possible outcomes and turn them into choices. The risk with a simulation like the Monte Carlo is it relies on investors being rational and underestimates extreme bear events.
