When the weather report says there’s a 40% chance of rain, and it rains, do you lose faith in its predictions?
No — you recognize that the weather is inherently uncertain and that a definitive statement of whether it will or won’t rain tomorrow is usually the wrong thing to offer.
And that’s where most new investors go wrong. They want a precise answer to the question — which stock should I buy?
When they seek answer to this question from any experienced and successful long term stock market investor, he often tells (if he has no axe to grind) something along these lines — in a portfolio of 10 such stocks, there’s a 70 percent probability of making better than broader market returns.
“You’re not giving me an answer,” you’d shake your head. “Should I buy this stock or not?”
[Read more…] about Being (approximately) Right