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Key take aways
- There is a gap between perception and reality
- Its the distortion that shapes events
- Market participants operate with biases and these biases influence the course of events
- Market prices are always going to be wrong because its offers a biased view of the future
- biases works both ways
- biases are self reinforcing, overreaction happens
- boom and bust are attributed to the flux and uncertainty due to this gap
- since the market is always wrong if you follow everyone else, you will perform poorly
- On risk taking
- Its alright to take risk
- When taking risk don’t bet the ranch
- Once you know what the market is thinking, bet on the unexpected
- look for a sudden change in the market not yet identified by anyone else
- develop a thesis and test it on the market
- take a position where you have time on your side
- learn how to survive
- Attain superior long term returns through preservation of capital and home runs
- Its not whether you are right or wrong but how much you make when you are right and how much you lose when you are wrong
- On positions
- be willing to endure the pain of following your logic when everyone else is going the other way
- pick the best and worst performers in an industry
- if your investment is going well, follow your instincts and go with all you’ve got
- To avoid
- lopsided trend following is necessary to produce a violent market crash
- investors trying to influence prices by acquiring a large position in a currency will face disastrous results when position is sold
- At times gut feelings will need to override logical analysis
- gain access to world leaders for better insights
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