Inevitably the odds eventually catch up with the prognosticator. They guess incorrectly, and many people are harmed. But more damage can be done with a few incorrect guesses that all the correct guesses combined. That is because few are following when the prognosticator first starts making predictions. But at the end many people are following, and many will most likely be taking much larger positions than they were in the beginning.

Investment Probability and Value

It is easy to become lazy and attempt to follow an investment guru instead of implementing fundamental investing principles. But there are no short cuts in investing. Any investment philosophy that is going to make you rich quickly is a scheme that will end badly.

Fortunately, for those willing to develop patience and implement a long term investing plan, probability comes close to guaranteeing positive outcomes by focusing on valuation and investing for the long term.

A basic understanding of investment probability theory will cause an investor to ignore short term market prognosticators and focus on value. Examples of valuation tools I like to use are Shiller PE10, Enterprise Multiple, Graham Number, Return on Capital Ratios, PEG Ratio, and Earnings to Price yield.

This article was republished with permission from Arbor Investment Planner.