Monday, 20 October 2008

Consequences must dominate Probabilities

In making decisions under conditions of uncertainty, the consequences must dominate the probabilities. We never know the future.

The intelligent investor must focus not just on getting the analysis right. You must also ensure against loss if your analysis turns out to be wrong - as even the best analyses will be at least some of the time.

The probability of making at least one mistake at some point in your investing lifetime is virtually 100%, and those odds are entirely out of your control. However, you do have control over the consequences of being wrong.

Many "investors" put essentially all of their money into dot-com stocks in 1999; an online survey of 1,338 Americans by Money Magazine in 1999 found that nearly one-tenth of them had at least 85% of their money in Internet stocks. By ignoring Graham's call for a margin of safety, these people took the wrong side of Pascal's wager. Certain that they knew the probabilities of being right, they did nothing to protect themselves against the consequences of being wrong.

Simply by keeping your holdings permanently diversified, and refusing to fling money at Mr. Market's latest, craziest fashions, you can ensure that the consequences of your mistakes will never be catastrophic. No matter what Mr. Market throws at you, you will always be able to say, with a quiet confidence, "This, too, shall pass away."


The Intelligent Investor by Benjamin Graham

Pascal's Wager

1 comment:

Samgoss said...

2 BB, u r another high EQ gentlemen , no matter how seng hantam u , still u can show yr smiley face over there , my salute 2 u ! dont worry bb , alot of silent readers r backing u from behind, keep it up BB ^V^
21 Oct 08, 12:37
bullbear: Well, folks. I have to take leave again from this chatroom. Good luck to you all in your investing and everyday living. BYE
tk: NEWBIE!!!
21 Oct 08, 12:14
Seng: Like Mr L. Don't buy TNB every year ... just wait until 1997 and then buy once every 10 years. Don't be fooled by bb or any one else's comment that stocks are cheap. When people says stocks are cheap, it usually means it's not cheap enough yet.
21 Oct 08, 12:14
Moolah: changed name if not mistaken .
2 felix , if u hv guts like newbies , go ahead on KNM, i hv no guts to buy knm @ this level, dow future is turning red liaoo...hard to predict what will happen 2molo, let pray there is no another 911 from now onwards, if not, another 911 by osama bin laden will definitely bring d world to a place named " HELL " ! ha ha...

KNM is good 4 swing , but at this price , it is 50/50 . u decide bro ^V^