Probability

“Too many investors fail to follow some simple, time-tested tenets that improve the odds of achieving success and, at the same time, reduce the anxiety naturally associated with an uncertain undertaking.”

“If we assume that a very considerable amount of Wall Street activity must inevitably have elements of chance in it, then the sound idea would be to measure these chances as accurately as you can, and play the game in the direction of having the odds on your side.”

“The security analyst can only give you certain hints as to what the solution is likely to be, certain indications of a range of value rather than a specific figure, and perhaps a diffident suggestion as to where within this range he believes the probabilities of the future will lie.”

“Process and outcome are two different things.”

“Investing is all about probabilities, and just because there appears to be a strong consensus prices are going to keep going up, doesn’t mean that is wrong, or right. The consensus does tend to be wrong at the turning points, being invariably bullish at the top and bearish at the bottom.”

“A lot of people look to hit singles and sacrifice bunts and make small returns. But statistically you are far better off with huge gains because you are going to make mistakes. And if you are playing small ball and you make a few mistakes, you can’t recover.”

“Managers should start out with the belief that if they are trying to actively manage money and outperform the market, the odds are against them.”

“Beating the market averages, after paying substantial costs and fees, is an against-the-odds game; yet a few people can do it, particularly those who view it as a game full of craziness with an occasional mispriced something or other.”

“Beating the market averages, after paying substantial costs and fees, is an against-the-odds game; yet a few people can do it, particularly those who view it as a game full of craziness with an occasional mispriced something or other.”

“Every basis point of return — let alone every 100 basis points — has a staggering difference in outcomes in the long run. That’s why you stay focused on the long term and the rate of return; that is where the difference is, that is what you want and need to capture.”

“Risk is when there are multiple possible future states and the probabilities of those different future states occurring are known.”

“Bad incentives create bad outcomes — every time.”

“Outcomes are an unreliable guide to process.”

“The best decisions can lead to bad outcomes.”

“Ignoring base rates is one of the most common decision errors.”

“History doesn’t repeat, but it provides probabilities.”

“You always need to be cognizant of six sigma events that can have ugly impacts on your portfolio and account for the approximate probabilities.”

“Investing is not a discipline based on absolutes or precise mathematics. There simply aren’t enough data points available to work out the exact odds.”

“Scale economies shared create extraordinary outcomes.”

“The enchantment which some growth companies convey to the stock market lends a premium to their common stocks which is not always justified by the statistical background.”

“Many years ago, an older partner taught me to distinguish between outcomes that are unlikely and outcomes that are catastrophic. The latter are to be avoided even if the odds on them are tiny.”

“The most important lesson an investor can learn is to be dispassionate when confronted by unexpected and unfavorable outcomes.”

“Few decisions in life motivated by greed ever have happy outcomes.”

“Consequences, not probabilities, determine the decisions that matter.”

“A lot of mutual fund managers don’t know what they own. The odds are the best they have ever been for the individual.”

“People who exit the stock market to avoid a decline are odds-on favorites to miss the next rally.”

“Believability-weighted decision making improves outcomes”

“You want to design a portfolio that will make the members of a household as happy as possible, but the problem is that people aren’t very good at anticipating how they’re going to react to various market outcomes.”

“The line I draw in the sand is that if an asset has cash flow or the likelihood of cash flow in the near term and is not purely dependent on what a future buyer might pay, then it’s an investment. If an asset’s value is totally dependent on the amount a future buyer might pay, then its purchase is speculation.”

“The laws of probabilities tell us that almost anyone can achieve phenomenal success over any given measurement period. It is the task of those evaluating a money manager to ascertain how much of past success is due to luck and how much to skill.”

“The way to maximize outcome is to concentrate on process.”

“Anybody that says that they see five and ten standard deviation events every couple of years is obviously not thinking correctly about probabilities.”

“The crowd is usually right about outcomes, wrong about prices.”

“Odds reflect emotion as much as information.”

“Nothing is certain — everything has odds.”

“The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability — the reasoned probability — of that investment causing its owner a loss of purchasing power over his contemplated holding period.”

“The propensity to gamble is always increased by a large prize versus a small entry fee, no matter how poor the true odds may be.”