Decision principleContrarian viewInvestingPsychology and behaviourDecision-making
One person's record is a story about survivorship until proven otherwise
How I Made $2,000,000 in the Stock Market
The idea
Darvas made two million dollars trading from telegrams while touring as a dancer, and wrote it up as a method. The Library's note reads the book as a document about discipline and survivorship rather than a system to copy, and that reading generalises. Any single published record was selected for publication because it worked, which tells you little about how often the same method failed for people who did not write books. The question to ask of any track record, including your own, is how many people did the same thing and are not in the sample.
Ask how many people ran the same method and are not in the sample before treating a record as evidence of skill.
When it works
Reading any success memoir, evaluating a manager's record, or presenting your own.
When it may fail
Survivorship does not mean the survivor had no skill; it means the record alone cannot show it. Long records with stated rules and bad years are better evidence than short, smooth ones.
How to use it
When a method is sold on one person's result, look for the base rate: how often does the method work across everyone who tries it? If the base rate is unknown, say so rather than inferring skill from the one case.
Where it came from
Book How I Made $2,000,000 in the Stock Market · Nicolas Darvas
What the source says. A 1960s account of trend following by a dancer reading cables on tour, to be treated as a document about discipline and survivorship rather than a method to copy.
Competing perspectives
Argues against
Weight an opinion by the record of the person holding itIn a disagreement, weight each view by that person's track record on the question, not by their rank or confidence.
Connected ideas
Says something similar
Traders who agree on nothing else all agree about risk controlThe common factor among people who last is not how they pick trades but how they limit what a wrong one costs.
Puts it to work
Anchoring and base rate neglect are the two biases that cost moneyBefore estimating, ask what number is anchoring you and what the base rate is for cases like this.
Says something similar
Returns too smooth to be real are themselves the evidenceA track record with no bad months is a question, not a credential.
Concepts
Put it to work on L3VLUP
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