Stricktly +EV for a Young Investor
 

My question is what do you think of this guy and his strategy?

A young man in California, has $25,000 to invest. He wants to be very aggressive and only cares about making the most +EV choices w/ his investments.

This person plans to have a decent paying job 50-70k/year, and wants to buy a house someday. For now he is single, without too many living expenses and puts whatever money he can into his portfolio.

Normal advice would be to stick his money in a few mutual funds. But because he only cares about being as +EV as possible would a better line be an all single stock portfolio?

Doing this by himself, he plans to use mostly Large cap w/ some Mid-cap stocks. He picks a blend of growth and value companies all in different consumer industries. He uses the Standard & Poor's reports and only purchases companies rated 5 stars.

Re: Stricktly +EV for a Young Investor
 

Unless he wants to spend the time to learn and read and research stocks and pick them very selectively, I think index is the most EV.

Re: Stricktly +EV for a Young Investor
 

I guess another big question, is what does everyone think of the S&P reports?

I just bought some Intel and Mcdonalds recently, rated well in these reports

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
He wants to be very aggressive and only cares about making the most +EV choices w/ his investments.

[/ QUOTE ]

This is an oxymoronic statement. There is no EV possible for stock market investments. To be +EV he needs to be in T-bonds or the like, where it's not possible to lose money.

Re: Stricktly +EV for a Young Investor
 

Just go all equity index or other low cost well diversified mutual funds

Re: Stricktly +EV for a Young Investor
 

Your strategy will give you higher risk, but not higher EV. Just invest in a diversified portfolio of indexes and weight it more heavily towards value and small cap. In fact this would likely be more +EV than purchasing individual stocks if your selections are in large cap/mid cap.

Re: Stricktly +EV for a Young Investor
 

If he has 25,000 now and is making 60,000+ a year currently.........he should be completely retired in 5-10 years if he has half a brain.

Learn how to gamble and find investments against the norm.

-FH-

Re: Stricktly +EV for a Young Investor
 

lol. Seriously this is ridiculous. 60k in California means he isn't going to be saving very much. Assuming he needs to have 2M to retire (which probably requires him to move out of California so his cost of living is lower) he needs to get about 33% return on his investment for 10 years (assuming he saves 10k, 20k, 30k, etc 1st year, 2nd year, etc which I think is high as well).

Index funds FTW

Derivative Premium Arbitrage
 

There are certain derivative options/futures/stock strategies that can produce better than average returns with little or no risk to capital.

Conversion - Long stock, short call, long put - This strategy captures the difference in premium between the call and the put and any dividend in the stock w/o risk.

A reversal is the opposite of the conversion - short stock, long call and short put for the rare instances when puts carry more premium than calls.

Simulated Baskets - Because of the cap weighting one can assemble a basket of around a dozen stocks that act almost exactly like a cap weighted basked of the 500 stocks in the S&P or the 100 stocks in the OEX. The most common strategy is during periods of higher premium in the futures to be long the stocks and short the future. AS with the conversion during rare periods of negative premium you would be short the stocks and long the future.

In addition to the conversions there are plenty of other option based premium capture arbitrage strategies.

To profitably capture these premiums requires very low commissions and cost of carrry as well as expert executions. It also requires a much higher level of understanding of the markets and their instruments than is exhibited by the OP.

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
Your strategy will give you higher risk, but not higher EV. Just invest in a diversified portfolio of indexes and weight it more heavily towards value and small cap. In fact this would likely be more +EV than purchasing individual stocks if your selections are in large cap/mid cap.

[/ QUOTE ]

By this argument wouldn't it be maximum EV to just buy value and small cap? I know it will increase volatility, etc but if you're saying that being heavier in those areas increases the overall EV then being 100% in those areas should be even more EV right?

Re: Stricktly +EV for a Young Investor
 

lol your whole post is a contradiction

when you are new buy blue chips, when you feel more confident have a look at some mid caps and eventually some small caps

also at mid cap stage look into options and margin lending (only with a small risk)

basically you just want to educate yourself and get experience in the market with certain types of stocks

dont blindly follow stock reports

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
If he has 25,000 now and is making 60,000+ a year currently.........he should be completely retired in 5-10 years if he has half a brain.

Learn how to gamble and find investments against the norm.

-FH-

[/ QUOTE ]Thats me, please show me the way.

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
I guess another big question, is what does everyone think of the S&P reports?

I just bought some Intel and Mcdonalds recently, rated well in these reports

[/ QUOTE ]

Personally I like the S&P reports, I have got some good recommendations from them. A free source with very good information!

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
[ QUOTE ]
He wants to be very aggressive and only cares about making the most +EV choices w/ his investments.

[/ QUOTE ]

This is an oxymoronic statement. There is no EV possible for stock market investments. To be +EV he needs to be in T-bonds or the like, where it's not possible to lose money.

[/ QUOTE ]
This is a moronic statement.

Re: Stricktly +EV for a Young Investor
 

I'll take a shot at explaining what is going on here:

1. Higher returns are possible by picking a single stock than by buying the index.

2. Buying a single stock picked at random (or picked by someone without skill) is not higher EV than buying the index.

3. Based on the OP, buying an index is the most +EV for you.

Re: Stricktly +EV for a Young Investor
 

The EV of a single stock is generally the same as the EV for the index. It would be the same with 5 stocks, or 20 stocks. The big difference is the standard deviation.

The standard deviation of 1 stock might be 50%. The stock can easily double or triple, but it can also be cut in half or in a third. The standard deviation of the index may be only 20%. It is less likely to double or triple, but it is also less likely to be cut in half or in a third. The EV would be the same 8-12% average per year.

(This whitepaper (PDF, 1.2MB) is well written, and has pretty good capital market assumptions: how much different categories of stocks and bonds should average with what standard deviation over any future 30-year period.)

I think John Bogle from Vanguard had a quote about investment research. Don't know it exactly, but basically the value of the research is zero.

-Tom

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
[ QUOTE ]
If he has 25,000 now and is making 60,000+ a year currently.........he should be completely retired in 5-10 years if he has half a brain.

Learn how to gamble and find investments against the norm.

-FH-

[/ QUOTE ]Thats me, please show me the way.

[/ QUOTE ]

Don't get married, live in a hovel. Ship it.

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
[ QUOTE ]
He wants to be very aggressive and only cares about making the most +EV choices w/ his investments.

[/ QUOTE ]

This is an oxymoronic statement. There is no EV possible for stock market investments. To be +EV he needs to be in T-bonds or the like, where it's not possible to lose money.

[/ QUOTE ]

do you mean there is no EV in active management for an individual like the op?

can you clarify what you mean here?

thanks,
Barron

Re: Stricktly +EV for a Young Investor
 

Please don't listen to the posters in this thread who are telling you index funds are always better than actively managed funds, because there couldn't be anything further from the truth. Take some time to research funds out their with great track records, relatively low costs, and have a min. fee that meets your requirements.

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
Please don't listen to the posters in this thread who are telling you index funds are always better than actively managed funds, because there couldn't be anything further from the truth. Take some time to research funds out their with great track records, relatively low costs, and have a min. fee that meets your requirements.

[/ QUOTE ]

index funds in conjunction with a well constructed portfolio has always done better and will in all likelihood will always do better than actively managed funds.

Barron

Re: Stricktly +EV for a Young Investor
 

Construct a diversified portfolio of index funds. Use tax-advantaged accounts if possible.

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
Please don't listen to the posters in this thread who are telling you index funds are always better than actively managed funds, because there couldn't be anything further from the truth. Take some time to research funds out their with great track records, relatively low costs, and have a min. fee that meets your requirements.

[/ QUOTE ]

This has been discussed many times on this forum, and the consensus is that you are wrong. Sure there will be a fund that outperforms the index, but what are the chances that OP picks it? What are the chances it continues to outperform over many years?

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
If he has 25,000 now and is making 60,000+ a year currently.........he should be completely retired in 5-10 years if he has half a brain.

Learn how to gamble and find investments against the norm.

-FH-

[/ QUOTE ]Thats me, please show me the way.

[/ QUOTE ]

Don't get married, live in a hovel. Ship it.

[/ QUOTE ]

Exactly what I may be doing come next June........and I'm approaching 50 years old.

1. DONT get married

2. Learn how to gamble(poker, video poker, sportsbetting).

3. Live frugally

4. Do not buy more than one new car in your lifetime(everybody should buy one just for the helluva it), but used is the way to go.

5. Clip coupons

6. Tip more than the norm but don't overdue it.

7. Diversify your investments.....real estate, stocks, savings, farmland, precious metals, collectibles.

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
[ QUOTE ]
Please don't listen to the posters in this thread who are telling you index funds are always better than actively managed funds, because there couldn't be anything further from the truth. Take some time to research funds out their with great track records, relatively low costs, and have a min. fee that meets your requirements.

[/ QUOTE ]

index funds in conjunction with a well constructed portfolio has always done better and will in all likelihood will always do better than actively managed funds.

Barron

[/ QUOTE ]

Thank you for telling me what I already know.

Re: Stricktly +EV for a Young Investor
 

[ QUOTE ]
[ QUOTE ]
Please don't listen to the posters in this thread who are telling you index funds are always better than actively managed funds, because there couldn't be anything further from the truth. Take some time to research funds out their with great track records, relatively low costs, and have a min. fee that meets your requirements.

[/ QUOTE ]

This has been discussed many times on this forum, and the consensus is that you are wrong. Sure there will be a fund that outperforms the index, but what are the chances that OP picks it? What are the chances it continues to outperform over many years?

[/ QUOTE ]

Well I guess that depends on how much work and research he puts into finding attractive funds.

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
....To profitably capture these premiums requires very low commissions and cost of carrry as well as expert executions. It also requires a much higher level of understanding of the markets and their instruments than is exhibited by the OP.

[/ QUOTE ]

Probably won't get any of these at your run of the mill discount broker but could be wrong about that. Very interesting post.

Re: Derivative Premium Arbitrage
 

It's always funny to read people discuss complicated investment concepts on here and then stumble through the most remedial discussions imaginable on basic investing.

The higher the "EV" or expected return of an investment, the higher the degree of risk. If you have some extraordinary ability to evaluate expected return and risk more accurately than the market, good for you. You're one of extremely few.

For all of us mortals, investing in an index--a portfolio with a huge array of stocks of a relatively high risk level-- is about the best we can do; we maximize return while minimizing risk for that level of return. Mutual funds are a lot like indexes--they're still only buying the same stocks with publicly available information--and they have a rake. It turns out the casual investor very rarely overcomes this rake. Therefore, indexes appear to be the better buy.

Any of your own research you sit and do from your computer will be essentially worthless. You won't gain anything, and you won't lose anything. Your expected return will be exactly the same.

And none of us has the ability to take advantage of derivative premium arbitrage. The cost for an ordinary person to make such investments exceeds whatever (negligible) return bonus you could ever get many times over.

Re: Derivative Premium Arbitrage
 

75% of the people in this thread have no idea what they are talking about.

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
75% of the people in this thread have no idea what they are talking about.

[/ QUOTE ]

Informative, thanks

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
It's always funny to read people discuss complicated investment concepts on here and then stumble through the most remedial discussions imaginable on basic investing.

The higher the "EV" or expected return of an investment, the higher the degree of risk. If you have some extraordinary ability to evaluate expected return and risk more accurately than the market, good for you. You're one of extremely few.

For all of us mortals, investing in an index--a portfolio with a huge array of stocks of a relatively high risk level-- is about the best we can do; we maximize return while minimizing risk for that level of return. Mutual funds are a lot like indexes--they're still only buying the same stocks with publicly available information--and they have a rake. It turns out the casual investor very rarely overcomes this rake. Therefore, indexes appear to be the better buy.

Any of your own research you sit and do from your computer will be essentially worthless. You won't gain anything, and you won't lose anything. Your expected return will be exactly the same.

And none of us has the ability to take advantage of derivative premium arbitrage. The cost for an ordinary person to make such investments exceeds whatever (negligible) return bonus you could ever get many times over.

[/ QUOTE ]

Does Bill Miller have a secret machine that the rest of us mortals aren't exposed to?

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
[ QUOTE ]
It's always funny to read people discuss complicated investment concepts on here and then stumble through the most remedial discussions imaginable on basic investing.

The higher the "EV" or expected return of an investment, the higher the degree of risk. If you have some extraordinary ability to evaluate expected return and risk more accurately than the market, good for you. You're one of extremely few.

For all of us mortals, investing in an index--a portfolio with a huge array of stocks of a relatively high risk level-- is about the best we can do; we maximize return while minimizing risk for that level of return. Mutual funds are a lot like indexes--they're still only buying the same stocks with publicly available information--and they have a rake. It turns out the casual investor very rarely overcomes this rake. Therefore, indexes appear to be the better buy.

Any of your own research you sit and do from your computer will be essentially worthless. You won't gain anything, and you won't lose anything. Your expected return will be exactly the same.

And none of us has the ability to take advantage of derivative premium arbitrage. The cost for an ordinary person to make such investments exceeds whatever (negligible) return bonus you could ever get many times over.

[/ QUOTE ]

Does Bill Miller have a secret machine that the rest of us mortals aren't exposed to?

[/ QUOTE ]Review the bolded section.

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
It's always funny to read people discuss complicated investment concepts on here and then stumble through the most remedial discussions imaginable on basic investing.

The higher the "EV" or expected return of an investment, the higher the degree of risk. If you have some extraordinary ability to evaluate expected return and risk more accurately than the market, good for you. You're one of extremely few.

For all of us mortals, investing in an index--a portfolio with a huge array of stocks of a relatively high risk level-- is about the best we can do; we maximize return while minimizing risk for that level of return. Mutual funds are a lot like indexes--they're still only buying the same stocks with publicly available information--and they have a rake. It turns out the casual investor very rarely overcomes this rake. Therefore, indexes appear to be the better buy.

Any of your own research you sit and do from your computer will be essentially worthless. You won't gain anything, and you won't lose anything. Your expected return will be exactly the same.

And none of us has the ability to take advantage of derivative premium arbitrage. The cost for an ordinary person to make such investments exceeds whatever (negligible) return bonus you could ever get many times over.

[/ QUOTE ]

Does Bill Miller have a secret machine that the rest of us mortals aren't exposed to?

[/ QUOTE ]Review the bolded section.

[/ QUOTE ]

Warren Buffet doesn't own a computer.

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
It's always funny to read people discuss complicated investment concepts on here and then stumble through the most remedial discussions imaginable on basic investing.

The higher the "EV" or expected return of an investment, the higher the degree of risk. If you have some extraordinary ability to evaluate expected return and risk more accurately than the market, good for you. You're one of extremely few.

For all of us mortals, investing in an index--a portfolio with a huge array of stocks of a relatively high risk level-- is about the best we can do; we maximize return while minimizing risk for that level of return. Mutual funds are a lot like indexes--they're still only buying the same stocks with publicly available information--and they have a rake. It turns out the casual investor very rarely overcomes this rake. Therefore, indexes appear to be the better buy.

Any of your own research you sit and do from your computer will be essentially worthless. You won't gain anything, and you won't lose anything. Your expected return will be exactly the same.

And none of us has the ability to take advantage of derivative premium arbitrage. The cost for an ordinary person to make such investments exceeds whatever (negligible) return bonus you could ever get many times over.

[/ QUOTE ]

Does Bill Miller have a secret machine that the rest of us mortals aren't exposed to?

[/ QUOTE ]Review the bolded section.

[/ QUOTE ]

Warren Buffet doesn't own a computer.

[/ QUOTE ]Nonetheless, I'm pretty sure he can distinguish between the words "few" and "none."

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
It's always funny to read people discuss complicated investment concepts on here and then stumble through the most remedial discussions imaginable on basic investing.

The higher the "EV" or expected return of an investment, the higher the degree of risk. If you have some extraordinary ability to evaluate expected return and risk more accurately than the market, good for you. You're one of extremely few.

For all of us mortals, investing in an index--a portfolio with a huge array of stocks of a relatively high risk level-- is about the best we can do; we maximize return while minimizing risk for that level of return. Mutual funds are a lot like indexes--they're still only buying the same stocks with publicly available information--and they have a rake. It turns out the casual investor very rarely overcomes this rake. Therefore, indexes appear to be the better buy.

Any of your own research you sit and do from your computer will be essentially worthless. You won't gain anything, and you won't lose anything. Your expected return will be exactly the same.

And none of us has the ability to take advantage of derivative premium arbitrage. The cost for an ordinary person to make such investments exceeds whatever (negligible) return bonus you could ever get many times over.

[/ QUOTE ]

Does Bill Miller have a secret machine that the rest of us mortals aren't exposed to?

[/ QUOTE ]Review the bolded section.

[/ QUOTE ]

Warren Buffet doesn't own a computer.

[/ QUOTE ]Nonetheless, I'm pretty sure he can distinguish between the words "few" and "none."

[/ QUOTE ]

I agree with you that few investors can beat the market. I think your other point was that you need more than a computer to do this? That's what I'm disagreeing with. It seems like a pretty ignorant comment on your part, so I think it's more of a case of me misunderstanding you rather than you believing that.

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
I agree with you that few investors can beat the market. I think your other point was that you need more than a computer to do this? That's what I'm disagreeing with. It seems like a pretty ignorant comment on your part, so I think it's more of a case of me misunderstanding you rather than you believing that.

[/ QUOTE ]

Is this the phrase you take issue with? [ QUOTE ]
If you have some extraordinary ability to evaluate expected return and risk more accurately than the market, good for you.

[/ QUOTE ]
I'm not sure I imply that computers are at all necessary to do well in the stock market. Someone could have easily said what I said in 1925, although it would have been less true then.

Or do you take issue with this: [ QUOTE ]
Any of your own research you sit and do from your computer will be essentially worthless. You won't gain anything, and you won't lose anything. Your expected return will be exactly the same.

[/ QUOTE ] This is like saying "any amount of research you do on your computer to solve an unproven topology theorem will be pretty much worthless." You've got to be absurdly talented to have any chance. If someone isn't smart enough to beat the market, they'll sit there all day and look at information other people already know and get nothing out of it, besides a wealth of information that has already been reflected in market prices.

The normal investor who doesn't have take time or effort, or the necessary insight or talent, is much MUCH better off just investing in indexes and letting the cut-throat investors determine market prices once you consider the value of time and effort.

If you enjoy choosing stocks carefully and think you might have a very small edge or some insight that isn't reflected in market prices, then by all means, study away.

If it was the last statement about arbitrage, well, you quite frankly DO need a computer to take substantial advantage of arbitrage opportunities in any sort of developed-world exchange.

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
[ QUOTE ]
I agree with you that few investors can beat the market. I think your other point was that you need more than a computer to do this? That's what I'm disagreeing with. It seems like a pretty ignorant comment on your part, so I think it's more of a case of me misunderstanding you rather than you believing that.

[/ QUOTE ]

Is this the phrase you take issue with? [ QUOTE ]
If you have some extraordinary ability to evaluate expected return and risk more accurately than the market, good for you.

[/ QUOTE ]
I'm not sure I imply that computers are at all necessary to do well in the stock market. Someone could have easily said what I said in 1925, although it would have been less true then.

Or do you take issue with this: [ QUOTE ]
Any of your own research you sit and do from your computer will be essentially worthless. You won't gain anything, and you won't lose anything. Your expected return will be exactly the same.

[/ QUOTE ] This is like saying "any amount of research you do on your computer to solve an unproven topology theorem will be pretty much worthless." You've got to be absurdly talented to have any chance. If someone isn't smart enough to beat the market, they'll sit there all day and look at information other people already know and get nothing out of it, besides a wealth of information that has already been reflected in market prices.

The normal investor who doesn't have take time or effort, or the necessary insight or talent, is much MUCH better off just investing in indexes and letting the cut-throat investors determine market prices once you consider the value of time and effort.

If you enjoy choosing stocks carefully and think you might have a very small edge or some insight that isn't reflected in market prices, then by all means, study away.

If it was the last statement about arbitrage, well, you quite frankly DO need a computer to take substantial advantage of arbitrage opportunities in any sort of developed-world exchange.

[/ QUOTE ]

I disagreed with your second point regarding one needing to be extremely talented to beat the market only because of the way it was initially stated. I agree with your revised comments. A couple last thoughts:

1. Too many people feel all actively managed are bad since, on average, they don’t beat the market. Whenever someone on this forum asks for advice about investing some money, the immediate response is index funds. If someone puts some work into this (and an absurd amount isn’t necessary here), he can find a fund that, after fees, is expected to beat the market over a long timeframe. I’m planning on making an informative post regarding this because it’s lacking here big time. The key is focusing on newer funds with 3-5 year track records that are trying very hard to acquire additional money and, as a result, their fees will likely be bearable. An additional benefit is the fact that smaller stocks can still have a positive impact on its returns.

2. You don’t need to be brilliant to beat the market (even after fees). I agree that you need to put a ton of work and research into it, but to say only geniuses can beat the market is absurd. The biggest reason why the average investor (assuming he has average intelligence) fails to beat the market is a lack of patience. There was a post a week or two ago regarding how important the behavioral impacts of investing are and truer words were never spoken.

Re: Derivative Premium Arbitrage
 

Just put your money in index funds. Don't listen to anyone else.

Re: Derivative Premium Arbitrage
 

I concur

Re: Derivative Premium Arbitrage
 

PRE,


[ QUOTE ]
1. Too many people feel all actively managed are bad since, on average, they don’t beat the market. Whenever someone on this forum asks for advice about investing some money, the immediate response is index funds. If someone puts some work into this (and an absurd amount isn’t necessary here), he can find a fund that, after fees, is expected to beat the market over a long timeframe. I’m planning on making an informative post regarding this because it’s lacking here big time. The key is focusing on newer funds with 3-5 year track records that are trying very hard to acquire additional money and, as a result, their fees will likely be bearable. An additional benefit is the fact that smaller stocks can still have a positive impact on its returns.

[/ QUOTE ]

it seems that there are some logical issues with your statement here.

first, [elsewhere] you state that it is important to find funds with strong track records over long periods of time. i think 3-5 years isn't a long enough period of time in this space so finding new funds with long track records and low fees seems logically inconsistant. those funds who have strong track records have an incentive to charge more fees since this is the method most readily used by investors to choose among funds.

the qualification bolded above makes it seem like you want to choose a fund or select few funds and park your money with them over time (i.e. for a long time). but your advice regarding finding a new fund where an additional benefit is that small cap stocks are still a viable ivnestment strategy doesn't jive with the long term parking of money. as those funds acquire more capital (and if you chose to put your money in that new fund, it stands to reason that others will), the availability of the smaller cap stocks that have had a positive influence on returns (on which you based your selection) will diminish. you will therefore not be able to park your money there for too long and expect the same performance.

on that note, how can you control for the changing investment constraints of your selected "new" managers over time? you have chosen them based on their previous record, and, since they are still in the "trying to attract capital" phase, it stands to reason that their performance prior to your investment, and their performance for the next n years will be different solely based on the amount of capital invested in that fund or set of funds.

how can you tell a priori whether a manager with XAUM where X allows for small cap investments will be similarly able to beat the market with YAUM where Y>X and no longer allows for small cap investments?

this question can then be generalized to not only small cap investments but individual contribution to alpha generation (i.e. if the main guy at a fund or main group of guys at a fund are your reason for investing (or a strong one), then your choice is tied to them and if they leave, you then have to look for funds again) and other similar manager selection issues.

you are then in a situation where you need to re-adjust your allocations.

i await your post on the subject.

it seems to me that a well constructed diversified passive portfolio will outperform any combination of managed equity funds and be easier to construct and manage over time. thus, time would be far better spent constructing and managing a completely passive portfolio for almost every investor rather than going through the managed fund universe to eek out a very volatile and highly uncertain alpha.

you have also not dealt with the degree to which a fund beats the market and teh variability of that degree over time.

anyways, i'll comment more as this discussion progresses.

thanks,
Barron

Re: Derivative Premium Arbitrage
 

[ QUOTE ]
2. You don’t need to be brilliant to beat the market (even after fees). I agree that you need to put a ton of work and research into it, but to say only geniuses can beat the market is absurd.

[/ QUOTE ]

this is my problem with the manager selection/stock market beating issue. by how much can you be expected to beat the market? and how much additional work is required for that gain? what is the risk adjusted return you expect to generate over time and for how long will you need to do that work to generate those returns?

i don't think (with my current level of knowledge and research on the subject) that the trade off is worth it.

your time can be better spent, and more highly rewarded elsewhere.

alpha is zero sum and hard to find.

anyways, as to your initial point, i certainly agree. stating that only geniuses can beat the market is indeed absurd.

i can prove this by assigning the market to mean either the S&P500 or some other composite market cap weighted index of stocks. if you can work your ass off and identify 1 likely underperformer, you can beat the market. that strategy doesn't take a genius, just a lot of work for mininal excess return.

[ QUOTE ]
The biggest reason why the average investor (assuming he has average intelligence) fails to beat the market is a lack of patience.

[/ QUOTE ]

...and work.

[ QUOTE ]

There was a post a week or two ago regarding how important the behavioral impacts of investing are and truer words were never spoken.

[/ QUOTE ]

can you link that post? i have a vague memory of it and would like to re-read for this discussion.

thanks,
Barron