Teach yourself to THINK in PROBABILITIES and in MULTIPLE SCENARIOS.

Without question, Buffett's success is tied closely to number.

"One of the advantages of a fellow like Buffett is that he automatically thinks in terms of decision trees and the elementary maths of permutations and combinations."  (Charlie Munger)

Most people do not.

It doesn't appear that the majority of investors are psychologically predisposed to thinking in multiple scenarios.  

They have a tendency to make decisions categorically while ignoring the probabilities.

Thinking in probabilities

Thinking in probabilities is not impossible:  it simply requires attacking the problem in a different manner.

If your investing assumptions do not express statistical probabilities, it is likely your conclusions are emotionally biased.

Emotions have a way of leading us in the wrong direction, especially emotions about money.

But if you are able to teach yourself to think in probabilities, you are well on your way to being able to profit from your own lessons.

Not often will the market price an outstanding business or any other outstanding businesses substantially below their intrinsic value.

But when it does occur, you should be financially (have the CASH)  and psychologically prepared (have the COURAGE) to bet big. 

In the meantime, you should continue to study stocks as businesses with the idea that one day the market will give you compelling odds on a good investment.


"To the Inevitables in our portfolio, therefore, we add a few Highly Probables." (Buffett)

Risk is Manageable: Reduce Risk

Risk avoidance strategy:  Reduce Risk

This is the core of Warren Buffett's entire approach to investing.

Buffett invests only in what he understands, where he has conscious and unconscious competence.

But he goes further:  his method of avoiding risk is built into his investment criteria.  He will only invest when he can buy at a price significantly below his estimate of the business's value (the intrinsic value). He calls this his "Margin of Safety."

Following this approach, almost all the work is done BEFORE an investment is made.  (As Buffett puts it:  "You make your profit when you buy.")  

This process of selection results in what Buffett calls "high probability events":  investments that approach (if not exceed) Treasury bills in their certainty of return.

High Probability Events

No matter what his personal style, the Master Investor's method is designed to find one thing only:  what Buffett calls "high probability events."  He invests in nothing else.

When you invest in a "high probability event," you are almost certain to make money.  The risk of loss is tiny - and sometimes non-existent.

When capital preservation is built into your system, these are the only kinds of investments you will make.  That's the Master Investor's secret.

He KNOWS it is possible to make very big profits with little to even no risk of loss.