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The Value Perspective

CHAPTER

The Importance of Probabilistic Thinking in Investing

I should not bet enormous amounts of money on the outcome of one thing, which could go either way. Even if I think that the odds of somebody winning an election are 95%, I should still make sure that if the other 5% were to happen, I will still be reasonably comfortable. The Shannon's Demon is one of my favourite examples. And volatility tax is such an important concept, but it is very often misunderstood. Can we spend a little bit of time just delving into that in a bit more detail? Absolutely.

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