Stricktly +EV for a Young Investor

[jively]

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