Statistics for Business: Decision Making and Analysis, 3rd Edition

... downs come from?

By thinking of investing as a series of bets, we remove the compounding that happens to investments and concentrate on what happens each month anew. Most of these monthly bets made money. After all, the price went up on average. But we can also see quite a few losing bets. Bets on Enron were hardly a lock to make money. We can also appreciate the magnitude of what happened in October 1987: Stock in Enron fell nearly 30% that month. That wasn’t the only big drop either. During August 1998, stock in Enron fell 20%.

There’s another key difference between the timeplot of the prices (Figure 3) and the timeplot of percentage changes (Figure 4). Which plot shows a pattern? We would say that the timeplot of percentage changes in Enron stock ...