There goes an old saying "Care for what you wish…..cause you just might get it". Now here's my theory on wishing…….. 90% of the things you wish will never happen. The 10% that will happen is something you never thought would happen.
Now don't get me wrong out here, if you work hard enough...things will happen, they will happen in the same general direction you wanted them to be….only caveat…they won’t happen the way you wanted them to happen... Ultimately you will be part of a long term up trend but your movement will be a combination of moving averages and mean reverting levels.
Let me explain this in terms of stocks. Say a company has sound fundamentals…. over a 10 year period you can expect say 10-12% CAGR from the stock. Looks like a good investment doesn’t it……but will this stock make you rich??….for that you need the stock that will give you something like a 100% gain over a very short period of time…say a couple of years.
Now in the long term, the first one will give you consistent returns year over year, whereas the second one will be a series of advances and corrections, but in the long run both will come to the same mean level.
Now this is where the theory or probability comes in. Let’s say that the probability of Stock A going up is 0.6 and that probability of stock B is 0.4. The very act of investing in A since it has a greater chance of going up incrementally increases its probability over B. So essentially, the fate of A and B were decided even before the actual outcome.
At the end of the time period A will have a smooth ride to the mean level whereas B will have a roller-coaster ride to the same level. Mathematical inequalities somehow do not apply to life most of the times, the only unfortunate part is…the result was decided even before the game started…..and you thought the “odds” were on your side.
“Never take hope away from a man.........sometimes it’s the only thing he has.”
