![]() The price is now so high that it is hard to imagine that there are more good balls – or "fat pitches" – still in play. At least if we as value investors take as a starting point that investment is about exploiting the gap between price and value that is driven by investor behaviour. And because the market is more expensive than ever, the returns you can expect in future are likely to be lower as well. The valuation of large tech stocks, in particular, has risen to incredible heights over the past decade. The current situation with valuations is similar. Dice is a game of luck – the probability remains the same, regardless of what has happened before – but in Russian roulette the odds change depending on how many chambers are left. Throwing dice and Russian roulette have different outcomes depending on what has happened before. It is all about context, however, and if you are familiar with the game and know how probability works, you would be very unlikely to choose Russian roulette – regardless of the potential winnings. If you were unfamiliar with the rules of Russian roulette and just saw the first five people pull the trigger and walk away with 10 million dollars each, while the corresponding number of winners in the dice game left the table with a paltry 10 dollars each, you would clearly opt for the chance to win ten million dollars. Making the right choice is about knowledge and experience. If I offered you ten dollars to roll a six in a game of dice or USD 10 million to avoid the bullet in a game of Russian roulette – which would you choose? The dice game of course! Because even though the winnings are vastly greater in Russian roulette, the stakes are also immense - you risk paying with your life. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |