As much as I hate to promote any philosophy that would tend to chase people off mining threads, I guess the answer you imply is to treat yourself as your own child, think of your future as badly in need, and take all appropriate precautions.
In order to effect a portfolio of maximum growth a maximization of the expression: return = "historic" reward level X the "historic" probability of reward, is applied to the market group of equities as a whole.
Probability of reward is rated by the number of companies in a sector that achieved a positive balance over a period. The amount of gain averaged, is reward level. The two factors are intrinsically related, as the reward average is a function of probability of reward in turn. But you have to start somewhere to assign a reward amount for calculation purposes.
Reward level increases generally as probability of reward decreases of course, but perhaps it is not a direct relationship, or, it can be figured out, ie. its hard numbers divined by some means. I say sectors here because it is obvious that certain sectors are more stodgy and thus have lower risk and thus perhaps lower reward levels.
The trick of course is to develop a rating system that is not purely statistical but relies on other evaluations of quality to assign some sort of hard number to the risk equation and organize your choices. "Risk probability" or more properly grammatically, "gain uncertainty" cannot purely flow from reward level at all times, in all cases.
An example would be: industrial sector average gain 20% among gainers, average loss 25% among losers per year. Gainers are 40%, losers are 30% and no gain constitute 30% of total. So reward is .40 X .20 or 8% minus .30 X .25 or +0.5% on the average. It is important to choose stocks randomly, otherwise other factors may affect your probabilities adversely unless they are applied against the same sector with statistical precision.
Strangely Shannon's theory implies that it is best to trade among the equities that have the greatest volatility for maximization of profitability probability. It is the money management system that allows ones to trade these equities with confidence, in that wihtout loss limitation, any stock selection process is doomed to have excessive capital needs.
When in doubt get a recent photo of the manager and try to imagine having a conversation with him about a used car. On one hand you want him to be able to sell you the car, no matter what. On the other hand, you want to be able to drive the car away afterwards. Eventually the penny will drop about his character and you will be able to decide whether to trust him for ability and integrity.
What most people think is that integrity is easy to test for amongs people we know. I believe that is perfectly deceiving. Most people's lack of interest in paying debts to others is not necessarily proportional to their ability to pay them. In fact it is easy to figure when people are capable, of tehcnical and general matters, it is hard to see if they either will not deceive themselves or corruptly and arrogantly deceive others without any cause other than their own enrichment.
I think, that no matter what altruism seems to be built into the human race, they do not appear to be unfailingly honest in very many circumstances. My record so far in dealing with potential business partners is that after 40 years there has been a 100 percent failure rate with regard to either their success in acheiving, or their ability to fairly apportion the proceeds.
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