And the great lesson in humility that every gambler learns very quickly – that is, that even the smartest people can’t win them all – is also a lesson that should be imprinted on the brain of every investor.
“Investing is a game of skill – meaning inferior players can’t expect to be above-average winners in the long run,” Marks wrote in a seminal piece on the similarities between gambling and investing, appropriately titled "You bet!"
“But it also includes elements of chance – meaning skill won’t win out every time. In the long run, superior skill will overcome the impact of bad luck. But in the short run, luck can overwhelm skill, and the two can be indistinguishable.”
“Success in gambling doesn’t go to those who pick winners but to those with the ability to identify superior propositions," Marks says. "The goal is to find situations where the odds are generous to one side or the other, whether favourite or underdog. In other words, a mispricing.
“It’s exactly the same in investing. People often say to me, 'YZ is a great company with a bright future, so I bought the stock.' They’re picking a favourite but ignoring the proposition. The former alone isn’t enough; they should consider the latter as well.
No comments:
Post a Comment