PE> *I* *personally* have noticed the larger AMOUNT of payoff, but have
PE> not really got a handle on the CHANCE.  Actually, the thing that I
PE> am REALLY interested in is the AVERAGE RETURN, and I have basically
PE> taken a *guess* that the riskier investements will have a higher
PE> AVERAGE RETURN IN GENERAL, but I am keen to find some solid supporting
PE> evidence for that, because my guess might be wrong.  BFN.  Paul.

FM> You are quite right - this has been well researched. If the risk
FM> (formally defined as the standard deviation of the expected return) is
FM> greater then the return is greater.

AVERAGE RETURN?

FM> In one of my MBA finance lectures the lecturer bet that his investment
FM> strategy would outperform any of ours over the term. It was a large bet

The one you describe only shows the return for one stock, not his
average, which is what I am interested in.

FM> A science called Modern Portfolio Theory (MPT) tells you how to compose
FM> a portfolio of investments to maximise your return for any given level
FM> of risk (std. dev.) and this is what the so-called "quant"
fund managers
FM> use. MPT is a totally mathematical approach and involves no fundamental
FM> analysis of the companies or overall economic circumstances. It works
FM> well. It doesn't work perfectly, for a couple of reasons. One is that

FM> And that's why the "stock picking" and "timing"
approaches to
FM> investment survive in competition with MPT. Stock picking is well

Do you use MPT like this then?

FM> illustrated by our current experience with North Star. You thoroughly
FM> research and understand what's happening with a company and believe you
FM> can predict what's going to happen in advance of the prediction of every
FM> other analyst out there. So you buy them at 4 cents and then they trade
FM> at 16«. 

Isn't this more luck than anything else?  Was NTS any more researched
than Climax, which has gone from $1.32 to $1.30 in the last year or
whatever?

BFN.  Paul.
@EOT:

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