Key ideas:
Probability is the likelihood of an outcome. Probabilities are expressed numerically, but are often subjective.
Impact is the effect that a particular outcome will have.
Decision trees help us get a grip on our alternatives.
The concept of expected value helps us compare alternatives based on probability and impact.
Risk profies take us beyond expected value to consider unacceptable or fatal downsides.
Getting more information to reduce subjectivity in decision making takes time and costs money
Ref:
Risk: How to make decisions in an uncertain world
Editor: Zeger Degraeve
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
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