Two dangerous things happen when you rely too heavily on investment history as a guide to what’s going to happen next. 1. You’ll likely miss the outlier events that move the needle the most.

A portfolio can be set up to withstand 99 percent of all scenarios but succumb because it’s the remaining 1 percent that materializes. Based on the outcome, it may seem to have been risky, whereas the investor might have been quite cautious. • Another portfolio may be structured so that it will do very well in half the scenarios and very poorly in

This is why pros mentally separate ‘house money’ from their starting stakes. Expected value is an abstraction. What we really care about is the expected utility of our investment—how it will benefit our lives. It's much better to make a bunch of your parallel selves modestly rich than to make one of you spectacularly rich while impoverishing all th