Sequencing Risk: Why The Expected Value Is Not What You Should Expect
Expected value (EV) is a popular and often cited concept among investors. However, it’s a bit of a misnomer and has a few serious limitations. To briefly recap, expected value is a calculation made by multiplying the probability of something happening by the magnitude of the outcome. Let’s say you give me a bet on a fair die. The die has 6 sides so each side should show up 16.6% of the time – that’s 6 to 1 odds. Now let’s say I offer you