Law Of Large Numbers
As an example, assume that company X has a market capitalization of $400 billion and company Y has a market capitalization of $5 billion. In order for company X to grow by 50%, it must increase its market capitalization by $200 billion, while company Y would only have to increase its market capitalization by $2.5 billion. The law of large numbers suggests that it is much more likely that company Y will be able to expand by 50% than company X.
The law of large numbers makes logical sense. If a large company continues to grow at 30-50% every year, it would eventually become bigger than the economy itself! Obviously, this can't happen and eventually growth has to slow down. As a result, investing in companies with very high market capitalization can dampen the potential for stock appreciation.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
Law of large numbers — The law of large numbers (LLN) is a theorem in probability that describes the long term stability of the mean of a random variable. Given a random variable with a finite expected value, if its values are repeatedly sampled, as the number of these … Wikipedia
law of large numbers — Math. the theorem in probability theory that the number of successes increases as the number of experiments increases and approximates the probability times the number of experiments for a large number of experiments. [1935 40] * * * ▪ statistics … Universalium
law of large numbers — noun (statistics) law stating that a large number of items taken at random from a population will (on the average) have the population statistics • Syn: ↑Bernoulli s law • Topics: ↑statistics • Hypernyms: ↑law, ↑ … Useful english dictionary
law of large numbers — didžiųjų skaičių dėsnis statusas T sritis fizika atitikmenys: angl. law of large numbers vok. Gesetz der großen Zahlen, n rus. закон больших чисел, m pranc. loi des grands nombres, f … Fizikos terminų žodynas
law of large numbers — law′ of large′ num′bers n. math. the theorem in probability theory that the number of successes increases as the number of experiments increases and approximates the probability times the number of experiments for a large number of experiments •… … From formal English to slang
law of large numbers — noun The statistical tendency toward a fixed ratio in the results when an experiment is repeated a large number of times; law of averages … Wiktionary
law of large numbers — Date: 1911 a theorem in mathematical statistics: the probability that the absolute value of the difference between the mean of a population sample and the mean of the population from which it is drawn is greater than an arbitrarily small amount… … New Collegiate Dictionary
Law of large numbers — The mean of a random sample approaches the mean ( expected value) of the population as the sample grows. The New York Times Financial Glossary … Financial and business terms
law of large numbers — The mean of a random sample approaches the mean ( expected value) of the population as sample size increases. Bloomberg Financial Dictionary … Financial and business terms
law of large numbers — any of several theorems dealing with the convergence of the sample average to the population mean as the sample size is increased … Medical dictionary