“What all of the above really illustrates is the difference between superficial observation and deep, nuance analysis. The fact that something worked doesn’t mean it was the result of a correct decision, and the fact that something failed doesn’t mean the decision was wrong…

…This is at least as true in investing as it is in sports…….In his book, Taleb talks about “alternative histories,” which I describe as “other things that reasonably could have happened but didn’t.” Sure, the Seahawks lost the game (the 2015 Super Bowl). But they could have won, and Carroll’s decision would have made the difference in that case, too, making him the hero instead of the goat. So rather than judge a decision solely on the basis of the outcome, you have to consider (a) the quality of the process that led to the decision, (b) the a priori probability that the decision would work (which is very different from the question of whether it did  work), (c) the other decisions that could have been made, (d) all of the events that reasonably could have unfolded, and thus (e), which of the decisions had the highest probably of success.”, Howard Marks, Memo to Oaktree Clients, “Inspiration from the World of Sports”, October 22, 2015

“I contend that based on the above criteria, I made the correct decisions for IndyMac Bank, especially those decisions I made in 2007 and 2008. The fact that they didn’t work out, doesn’t mean they were not correct. It means that we experienced a highly improbable, nearly unpredictable series of financial and economic events that were beyond my and my management team’s (or any financial institution with our home lending business model) control. Fannie Mae, Freddie Mac, FHA, the FDIC, and several Too Big to Fail Banks (among many others) all failed or would have (if the government had not bailed them out) during the crisis.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Inspiration from the World of Sports

Posted on October 29, 2015, in Postings. Bookmark the permalink. Leave a comment.

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