Don't confuse strategy and outcome

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larryswedroe
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Don't confuse strategy and outcome

Post by larryswedroe » Wed Nov 28, 2012 3:05 pm

http://www.cbsnews.com/8301-505123_162- ... t-outcome/

Confusing strategy and outcome is one of the worst and most persistent mistakes people (not just investors) make
Hope you find it helpful
Best wishes
Larry

FillorKill
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Re: Don't confuse strategy and outcome

Post by FillorKill » Wed Nov 28, 2012 3:13 pm

Good timing on your part Larry.

With a 550M Powerball jackpot out there someone with a bad strategy is going to have a very good outcome….

kenner
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Re: Don't confuse strategy and outcome

Post by kenner » Wed Nov 28, 2012 3:17 pm

Seems like this a version of "stay the course". Assuming an investor has the correct long-term strategy, short-term outcome disappointments should not force the abandonment of the solid long-term plan.

umfundi
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Re: Don't confuse strategy and outcome

Post by umfundi » Wed Nov 28, 2012 3:24 pm

BlackBeltLurker wrote:Good timing on your part Larry.

With a 550M Powerball jackpot out there someone with a bad strategy is going to have a very good outcome….
Not really. The odds are 175 million to 1. The payoff is 275 million to 1. Seems like a good bet to me.

Nonetheless, I do not have a ticket. The odds of me being killed while driving to buy a ticket are greater than my odds of winning.

Keith
Déjà Vu is not a prediction

richard
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Re: Don't confuse strategy and outcome

Post by richard » Wed Nov 28, 2012 3:59 pm

umfundi wrote:
BlackBeltLurker wrote:Good timing on your part Larry.

With a 550M Powerball jackpot out there someone with a bad strategy is going to have a very good outcome….
Not really. The odds are 175 million to 1. The payoff is 275 million to 1. Seems like a good bet to me.
It depends on how many tickets are sold. If 350 million are sold, two people could easily win 137.5 million each. Plus 550 million is not present value and then there's taxes.

FillorKill
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Re: Don't confuse strategy and outcome

Post by FillorKill » Wed Nov 28, 2012 4:02 pm

umfundi wrote:
BlackBeltLurker wrote:Good timing on your part Larry.

With a 550M Powerball jackpot out there someone with a bad strategy is going to have a very good outcome….
Not really. The odds are 175 million to 1. The payoff is 275 million to 1. Seems like a good bet to me.

Nonetheless, I do not have a ticket. The odds of me being killed while driving to buy a ticket are greater than my odds of winning.

Keith
Yes, really.

Whether or not buying a powerball ticket is a good 'bet' is one thing; that may be so.

Whether or not it is a good strategy is not in doubt; it is not.

Hence neither you, Keith, nor I, have a ticket. :wink:

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Nestegg_User
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Re: Don't confuse strategy and outcome

Post by Nestegg_User » Wed Nov 28, 2012 4:18 pm

I admit... I paid $4 in "stupid tax"....






But I also have maxed out tax-exempt space and put over $xxk into taxable space this year....
so I'm "diversifying" possible future income streams.
Last edited by Nestegg_User on Sun Jan 13, 2013 10:23 pm, edited 1 time in total.

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Re: Don't confuse strategy and outcome

Post by RadAudit » Wed Nov 28, 2012 7:11 pm

Larry - thanks for the article. I usually find a pithy statement or two in each article that I get to send to the kids who are just starting out investing to keep them focused on investing correctly.
richard wrote:
umfundi wrote:
BlackBeltLurker wrote:Good timing on your part Larry.

With a 550M Powerball jackpot out there someone with a bad strategy is going to have a very good outcome….
Not really. The odds are 175 million to 1. The payoff is 275 million to 1. Seems like a good bet to me.
It depends on how many tickets are sold. If 350 million are sold, two people could easily win 137.5 million each. Plus 550 million is not present value and then there's taxes.
OK.What's the after tax risk adjusted pay off if 175 million tickets are sold? < $2.00?
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

umfundi
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Re: Don't confuse strategy and outcome

Post by umfundi » Wed Nov 28, 2012 7:24 pm

And, by the way, your odds of getting killed while driving are 1 in 90 million per mile driven. Down from 1 in 65 million a decade ago. The improvements in auto safety are quite astounding.

Yes, I am wrong. Your odds of a winning ticket are 1 in 175 million. Your actual winnings depend on the number of other winning tickets.

Keith
Déjà Vu is not a prediction

FillorKill
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Re: Don't confuse strategy and outcome

Post by FillorKill » Thu Nov 29, 2012 6:33 am

by Cheap_rookie » Wed Nov 28, 2012 5:18 pm

I admit... I paid $4 in "stupid tax"....

Did you win?

If not your back-up plan of putting away 200K a year might see you through.
And, by the way, your odds of getting killed while driving are 1 in 90 million per mile driven. Down from 1 in 65 million a decade ago. The improvements in auto safety are quite astounding.

Yes, I am wrong. Your odds of a winning ticket are 1 in 175 million. Your actual winnings depend on the number of other winning tickets.

Keith
That's a somewhat morbid statistic to have in your back pocket Keith, but I find it oddly comforting and yes astounding....

dziuniek
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Re: Don't confuse strategy and outcome

Post by dziuniek » Thu Nov 29, 2012 9:09 am

Time to move closer to work, I guess. :/

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Re: Don't confuse strategy and outcome

Post by fjsfjsfjs » Thu Nov 29, 2012 8:48 pm

The thing I never understood with regards to lottery is how many people start playing when jackpots are high. One would think that it doesn't matter terribly if you win 10 or 100 millions - most of us don't want to book a space flight and could live comfortably for the rest of our lives with a "small" lottery win.

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nisiprius
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Re: Don't confuse strategy and outcome

Post by nisiprius » Thu Nov 29, 2012 9:23 pm

Good question for the next campfire "horns-of-the-dilemma" bull session: would you rather have a good strategy with a bad outcome, or a bad strategy with a good outcome? :)
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

sscritic
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Re: Don't confuse strategy and outcome

Post by sscritic » Thu Nov 29, 2012 9:31 pm

I thought that question was answered when you were five and played AYSO soccer. Play well and lose or play poorly and win. Winning takes the cake (and the after game pizza) every time!

I really don't know why this topic comes up much after the age of 10. By then you should have learned that trying your best (the good strategy) is what counts.

john94549
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Re: Don't confuse strategy and outcome

Post by john94549 » Thu Nov 29, 2012 9:36 pm

You can purchase 1000 shares of SPXU at 39.05, then sell same at 39.32.

Nice outcome.

No strategy.

PS: I did this. It's not rocket science.

Default User BR
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Re: Don't confuse strategy and outcome

Post by Default User BR » Fri Nov 30, 2012 1:06 pm

fjsfjsfjs wrote:The thing I never understood with regards to lottery is how many people start playing when jackpots are high. One would think that it doesn't matter terribly if you win 10 or 100 millions - most of us don't want to book a space flight and could live comfortably for the rest of our lives with a "small" lottery win.
There was a comedian with a bit about people buying in when the pot goes up. "What's the jackpot at? Million-two? Bah, chump change!"


Brian

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Leif
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Re: Don't confuse strategy and outcome

Post by Leif » Fri Nov 30, 2012 2:20 pm

Cheap_rookie wrote:I admit... I paid $4 in "stupid tax"....
Like going to Vegas, I consider it entertainment money. Perhaps not very Bogleheadish...

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Re: Don't confuse strategy and outcome

Post by Levett » Fri Nov 30, 2012 5:11 pm

Whatever Nate Silver's strategy--which he attempted to explain in great detail at FiveThirtyEight--he sure got the outcome right! 8-)

He's a very smart dude.

Lev

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