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A tiny number of events explain the majority of outcomes
💡 You can be wrong most of the time and still win big, because a few tail events drive nearly all returns.
In 'Tails, You Win,' Housel explains that in investing (and much of life), a small number of events account for the majority of results. Most of what happens is unremarkable; a handful of extreme 'tail' events do the heavy lifting.
Consider that a huge share of an index's returns can come from just a few of its companies. Venture capital is even starker: most startups fail, a few do fine, and a tiny few generate almost all the fund's profits. The same is true for the greatest investors — you can be wrong half the time and still make a fortune, because when you're right on a few big things, they compound enormously.
The lesson: judge your performance on the whole portfolio, not individual picks. Expect lots of things to fail. What matters is how big the winners get, and that you stay positioned to catch them — not that you're right most of the time.
Source: The Psychology of Money: Timeless lessons on wealth, greed, and happiness — Morgan Housel