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#7 – Michael Mauboussin: The Fascinating World of Increasing Returns

Scaling Theory

NOTE

Investing: Focus on Returns, Not Accuracy

In investment strategy, the emphasis should not be on the frequency of making correct predictions but rather on the disparity between gains from successful investments and losses from unsuccessful ones. Achieving a success rate above 50% can be misleading, as it overlooks the critical factor of the magnitude of profits compared to losses. This principle is particularly relevant in venture capital, where potential returns from a few successful investments can outweigh the losses from others, highlighting the importance of carefully assessing risk and reward.

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