The Dynamics of Investment and Competition

This chapter explores how competition in capital markets influences investment performance and highlights the importance of long-term evaluation over short-term results. It also examines the roles of luck and strategic decision-making in investing through the perspectives of notable economists.

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In today's episode, Kyle Grieve discusses the book Against The Gods and how risk has evolved over history, why risk management was deeply routed in gambling, how the insurance industry was launched, revolutionary learnings on risk from brilliant historical figures, how regression was formulated and how it tricks investors, the two economists who upended utility theory, the powerful concept of prospect theory and how it showed how irrational humans are, and much more!

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro

06:52 - Why a human “calculator” can’t win in the market, and the key skills that drive investing success.

08:54 - The two critical risk concepts Cardano introduced to beat the odds—still useful for investors today.

11:12 - How Pascal and Fermat cracked the ‘problem of points’ and laid the groundwork for market probability models.

15:09 - How Daniel Bernoulli connected intuition with measurement.

20:24 - How Bayes’ rule transformed probability theory.

25:55 - Why focusing on the downside matters most—especially when the market is euphoric.

26:33 - How regression to the mean distorts our view of performance—and tricks investors into bad decisions.

38:47 - Why diversification can sometimes increase risk.

43:49 - How prospect theory rewrote the rules of decision-making—explaining why investors act irrationally.

52:01 - Why investors cling to bad ideas—how biases and ego can sabotage returns.

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

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