The illusion of understanding or how everyone thinks they know what is going on in a world that is more complicated (or random) than they realize The human mind suffers from 3 ailments as it comes into contact with history There are great problems with trying to forecast the future, given limited knowledge of the pastīlack swans being unpredictable, we need to adjust to their existence rather than naively try to predict them Rare, Extreme Impact and Retrospective predictability Human nature makes us concoct explanations for its occurrence _ after _ the fact No plans for taking losses or exit strategyĪ black swan is an outlier, as in outside the realm of regular expectations Overestimating accuracy of data or overconfidence No one accepts randomness in their success, only in their failureīad information is worse than no information at all Probability almost never presents itself as a mathematical problem or brain teaser Past events will always look less random than they were (hindsight bias) Cleary the quality of a decision cannot be solely judged based on its outcome. Such substitutes courses of events are called alternative histories. if history played out in a different way). "One cannot judge a performance in any given field by the results, but by the costs of the alternative (i.e. There is no point in searching for patterns that are available to everyone once detected, they would be self-canceling IE - Inequality of outcomes, don't try to pick up nickels in front of a train
Pascal's Wager – The optimal strategy for humans is to believe in God because if God does exist the believer will be rewarded and if he doesn't exist, the believer has nothing to lose. Investors for pure emotional reasons, will be drawn into strategies that experience rare but large variations. I believe that rare events are not fairly valued, and that the rarer the event, the more undervalued it will be in price I try to benefit from "rare events", events that do not tend to repeat themselves frequently
Maximize your profit expectancy, not probability It is not how likely an event is to happen that matters, it is how much is made or lost when it happens that should be the consideration Negative pangs cause a 2.5x more emotional response than a positive one But it is difficult to see in advance BEFORE it happens Don't monitor your portfolio on a daily basisĪFTER an event has occurred, it is easy to make a story as to why it happened and why people should have seen it. Over short terms, you see variance, not returns. Watch out judging a person by their results because history will only show you the winners. Survivorship Bias means you don't hear from the losers on a topic, you only hear from the winners.
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