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1/ The future is a probability distribution- almost nothing is certain. Investing is fundamentally a probabilistic exercise. You can have an excellent decision making process in making an investment and still have an unfavorable outcome. H/T Howard Marks and Michael Mauboussin
2/ Investing is about finding favorable odds. "Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain." Fees must be considered. H/T Buffett
3/ An investor can occasionally find an analytical, behavioral or informational edge that enables them to exploit the discrepancy between the actual likelihood of an outcome and the odds being offered in the market. Significant work, impulse control and patience are required.
4/ If an investor only invests when they have sufficient "margin of safety" to cover the margin of error (caused by mistakes, bad luck, psychological error etc) they have an opportunity outperform other investors. If this was easy to do, everyone would be rich.
5/ A wise investor seeks a positive expected value (an opportunity which has an anticipated benefit that exceeds the cost, including the opportunity cost of capital.) Gambling has negative expected value. Investing is the inverse of gambling on an expected value basis.
6/ An investor is not necessarily looking for the best performing business and instead is trying to find a stock whose odds of outperforming the market are substantially favorable. There is no stock that is a good or bad investment regardless of price.
7/ A moat, which is a measure of the *sustainability* of value creation, was never intended to be a factor in an index fund. Sustainability of a business is just one aspect of calculating expected value. That a business has a moat isn't a cure for paying too much for a stock.
8/ "If all you needed to do is to figure out what company is better than others, everyone would make a lot of money. But that is not the case. We’re trying to buy businesses with sustainable competitive advantages at a low – or even a fair price.” Charlie Munger
9/ If you work in an operating business the best way to make capital allocation decisions is the same as I described above for investing, but the markets are more inefficient. You will be a better investor if you have worked in a business and vice versa.
10/ It is the increased levels of market inefficiency that makes being part of an operating business more fun and interesting for me. The operating business has more opportunity to create value and more surprises. Of course, the fund of an investor is itself an operating business
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