Investing rules from John Templeton
Important points 1) Distinguish between Risk and uncertainty. It is possible to determine a low but imprecise probability of permanent loss. The Cameron School of Business put forth an important perspective. In casinos, the odds of winning, while quite small, are clearly defined. If one plays at the roulette table, one knows that there is a likelihood of 1/38 that one can beat the spinning wheel. Or in the game of poker, one can calculate quite accurately the probability of being given any particular winning hand. The players are facing the so-called “known unknowns.” The gamblers are facing Risk, where the odds are given, as opposed to Uncertainty, where they are not. However, the odds of beating the stock market are rarely clearly defined. As a result, many investors face Uncertainty as opposed to Risk. That is to say, the investors are faced with the “unknown unknowns.” 2) Market Prices / Sentiment may not coincide with economic reality. Loo...