From Geoff Yamane at Geoff-Yamane.com: Two variables determine successful bets. First, you must have some foresight in the future through betting on the right horses: this is an "investment process". Second, you must also identify where the odds, implied by prices, are different than your view of the future. The stock market is similar: investors bet on future company profitability relative to stock valuations (price-earnings ratio, for instance). There’s one more important point. Imagine you have an "investment process", in this case you collect statistical data on past horse races to forecast the future. You address your behavioural biases. You have "long-term capital", which means you are betting with your own money. Yet, after years of betting, your results are no better than average. At this point, the bettor probably reflects on his results, revisits his "process" and sees no obvious reason for his underperformance besides the fact that maybe luck runs in streaks. He’s missed ...
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