This week, one of my personal idols shared a quote on X that I really liked. More importantly, it closely reflects how I’ve been approaching every investment decision myself.
The idea Ray Dalio was conveying is this: “Treat every decision as a bet with probabilities and payoffs if you’re right, and probabilities and penalties if you’re wrong. A good decision is one with positive expected value, meaning the probability-weighted reward exceeds the probability-weighted loss. The best decision is the one with the highest expected value.”
Of course, reward, penalty, and probability are not numbers you can just make up based on preference. They must be grounded in concrete factors and reasoning. This part deserves a much deeper discussion, and it’s also the core theme of today’s piece.
On that note, I’m sharing an article by Cobie, the first place where I personally learned how to apply probabilistic thinking to investing.
Now, back to the main topic.