value
Tails Drive Everything
The rule
A tiny few big winners make almost all of your long-run money. So most of your bets being dull is normal, not failure.
Where it flips
Pushed too far, this becomes an excuse to hold rubbish forever, hoping any laggard is a secret winner, or to gamble on lottery-ticket penny stocks. The fix is to remember big winners are rare and quality still matters. Spread across sound businesses, not junk, and let winners run rather than chasing moonshots.
In investing, the results are very lopsided. Out of the many stocks you hold, most will do okay or badly. Just a few will do so well that they carry the whole basket. You cannot know in advance which few those will be. So you spread your money, and you resist cutting a winner early just to book a small gain. Do not judge yourself by how often you are right. The size of your rare big wins matters far more than your strike rate.
A worked example
Rohan holds 12 stocks bought at ₹50,000 each. Seven go nowhere, three drift down, but one rises 9x to ₹4.5 lakh. That one alone turns his ₹6 lakh into ₹9.5 lakh over a decade. [illustrative]
How to spot it
- ·Feeling like a failure because most picks were flat
- ·Selling a fast riser just to 'lock in' a small profit
- ·Judging yourself only by how often you were right
Morgan Housel · The Psychology of Money