- As an investor, 99% of the investments in your portfolio may turn out to be duds. But, the 1% may be stupendously right and can make you a fortune
- Always look at your portfolio as a whole, rather than individual investments when trying to assess your investment profile.
- It is expected to have large chunk of poor investments and a few outstanding ones.
- An investor can be wrong half the time and still make a fortune. It is normal for a lot of things to fail.
- So, we must avoid overreacting when things fail
- Being right or wrong isn’t that important. The important thing is how much you make when you are right, and how much you lose when wrong.
Link to originalGrow your profits when right, cut your losses when wrong
What is a tail event?
- Anything that is huge, profitable, famous or influential is the result of the tail event - an outlying one-in-thousands or millions event
- They are rare and powerful
- The distribution of success anywhere is driven by such tail events
- You keep putting your bets on a few things. One thing out of that portfolio gives you the defining success
Using tail event to your advantage
- There is little correlation between investing effort and results since the world is driven by tails.
- You won’t do well if you miss that 2-3 things that move the needle.
- Simple investment strategies work great as long as they capture the few things that are important to that strategy’s success.