Friends,
We hope that you are safe, happy, and WARM with your loved ones. If you live in the United States, the past week has been a dizzying mix of snow, sleet, ice, and dizzyingly cold temperatures.
It also has us thinking a lot about the weather.
When my (Stoffel, here) wife -- a native New Yorker -- moved to Wisconsin, she couldn't get over how the first thing everyone talks about in public is the weather. At first, I was unaware, but the more she mentioned it, the clearer our mini-obsession with Mother Nature became.
This led me to be hyper-aware of the phenomenon.
This made me acutely aware of a subset of folks who endlessly drone about how "the weatherman [or woman] is never right, and not worth listening to."
I have come to one solid conclusion: if you count yourself in this camp of meteorology-hating folks, you're probably not a very good investor.
Here's why: The National Oceanic and Atmospheric Administration has determined that 5-day forecasts accurately predict the weather over 90% of the time.
To put that predictive power in perspective, imagine a futures market for what the high temperature would be five days from now. But now imagine that no one has access to a meteorological report except for one person. That person could become a millionaire quickly with such an advantage.
What's the point for investors?
As dopamine-driven creatures, we like to focus on outliers: the one time the prediction was wrong, and it rained, or the one time a guru recommended an eventual 100-bagger.
Of course, in investing, the tails (a 100-bagger) matter a lot. But so do base rates. If only 1% of that guru's recommendations beat the market, that's crucial information to consider.
In investing (and life), there are two factors that matter:
- the percentage of times you're right/wrong
- How significant is the outcome when you are right/wrong
Everything else is just noise.
Aim to be right more than you're wrong, and make sure that when you're wrong, you never face the prospect of ruin.
Do that, and you're already in the upper echelon of investors.
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long-Term Mindset
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