risk
Asymmetry Of Errors
The rule
A wrong buy can ruin you, but a wrong pass only costs a maybe. So lean towards missing chances rather than making mistakes.
Where it flips
Taken too far, this becomes an excuse to never invest at all, and endless caution guarantees you fall behind rising prices. The fix is to still act firmly on the few businesses you truly understand. Missing out is the safer error, not the only allowed one.
There are two ways to be wrong. Buying a bad business, or skipping a good one. They do not hurt equally. Buy a fraud or a collapsing company, and you can lose most of your money and never get it back. Skip a good company, and you only miss a gain that was never yours. Because the harm from a bad buy is so much bigger, it is wiser to say "no" often, and say "yes" only when you are truly sure.
A worked example
Arjun passes on twenty exciting-looking stocks he could not fully understand, and buys only three he did. The twenty include a couple he "missed," but avoiding two blow-ups in that pile protected his whole basket. [illustrative]
How to spot it
- ·ask 'how bad if I'm wrong?' before 'how good if right?'
- ·comfortable saying no far more than yes
- ·avoids anything with catastrophic downside
Pulak Prasad · What I Learned About Investing from Darwin