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Mental Models discussed in this podcast:

Second-Order Effects
Mean Reversion
Factor Investing

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Show Outline

Today’s podcast will focus on a single precept: You can’t predict the future
First and Second Order Effects
- Margin of Safety
- Preference for cash now vs cash later (Plays into want for profitable companies) Time value of money.
- Growth is important because it can correct for mistakes, but you know you can’t predict it
- Some of what you “know” about investing may not be true
- Importance of Zero-Based Thinking (what is the best decision today based on what you know today)
  - Wrong because past price performance can’t predict the future (it may, but it may not)
  - Wrong because it assumes that winners will keep on winning and losers will keep on losing
- The central problem with rebalancing

First order:
Second order:

Investing in the face of uncertainty

You cannot assume business momentum. You plan for it and buy stocks you think will have it, but your strategy cannot assume it will continue

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137 - Expand Your Time Horizon

137 - Expand Your Time Horizon •
iHeart

The DIY Investing Podcast