Stricktly +EV for a Young Investor

[IVPanda]

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.

[hlacheen]

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.

[IVPanda]

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

[pig4bill]

[ 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.

[emon87]

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

[Newt_Buggs]

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.

[Fishhead24]

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-

[mtgordon]

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

[UrmaBlume]

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.

[mtgordon]

[ 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.

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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?