Richard Cohen's equation of gambling and stock-market investing misses the point [op-ed, June 8]. The distinction between a gamble and a sound but risky investment is a big one.

Take a lottery ticket. A person buys such a ticket in the long-shot hope that it will change his life by making him rich, but the expected net return of the ticket is negative, because the ticket's expected value (one's chance of winning times the price of the ticket) is always less than the ticket's price. That, after all, is how states make money from their lotteries. Lottery tickets are obviously not sound investments.

Stocks, on the other hand, while riskier than such alternatives as bonds and certificates of deposit, offer a superior expected return. Since 1926, the average annual return on stocks has been about 11 percent, the highest of any class of assets available. Buying a well-diversified portfolio of stocks and holding them for the long term is not a risky undertaking. Tens of millions of Americans who own stock primarily through pension funds and mutual funds are basically doing that.

Even obviously risky individual stocks of, say, Internet companies are something less than a pure gamble, since they have been rising in value over time, giving their holders numerous opportunities to sell them at a profit. While the market for Internet stocks may well be a bubble, few people make them the core of their portfolios. If one holds such stocks as part of a diverse portfolio that includes more established stocks, bonds and other investments, then one's overall portfolio risk is nothing much and the Internet stocks may be a reasonable addition to it.


Oswego, N.Y.