Stricktly +EV for a Young Investor

[T50_Omaha8]

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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.

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

[/ QUOTE ]Review the bolded section.