Focus:
explain the idea of investing as throwing a dice
magnitude + frequency = expected value
risk reward ratios and hit rates
undeterminacy (randomness) of markets and black swans
thinking of a generator and 1000 simulations (how to judge a trade and what mistakes to avoid)
Investments and trades should be thought of as financial bets that can end up in many different scenarios with different probabilities of realizing. Each financial bet can be interpreted as rolling a dice that has different probabilities to land on different sides. Nobody can tell you on what side the dice is going to land (or what the outcome of the financial bet will be), but the job of a good investor is to make sure that the odds of the dice he’s rolling are stacked in his favor.
The terms bullish (one expects increasing prices) and bearish (one expects decreasing prices) are frequently thrown around in predictions about financial markets. However, on their own they don’t really entail any significant information for whether a financial bet shall be taken or not. The problem is that the terms only give you information about whether an asset will move up or down, but this omits the thinking about probability of the individual scenarios realizing and the magnitudes of their outcomes.
Example:
A great market analyst might righly tell you that the market price is more likely to go up than down over the next week. However, in the rarer case that the
To judge any financial bet, one has to
Some Examples of Dice
Dice Two - Investing in Long Term Growth