Probability

Howard Marks explores the concept of risk through four key points. First, he highlights that the future is uncertain, and more outcomes are possible than will occur. Second, knowing probabilities does not eliminate uncertainty, as even the most probable outcomes are not guaranteed. Third, using the analogy of rolling dice, Marks illustrates that while we can determine the probability distribution, we cannot predict the specific outcome. Lastly, he stresses that expected value, which is the basis for many decisions, can be misleading as only one outcome will materialize. Furthermore, the speaker cautions against relying solely on expected value when making decisions, as unacceptable risks or consequences may outweigh the potential benefits. Similar to Taleb’s thoughts earilier this week.