I think this is why there will always be opportunities for high returns. Quantifiable correlations will always be bid away. But, there will always be unquantifiable uncertainty. Much of investing is earning rents on uncertainty, so that if you’re even slightly skilled at picking the right uncertainties, you can make huge returns. It seems to me that finance seems to either quantify uncertainties into risk models or pretends they aren’t important. But, for an individual investor they can be the most important thing to consider, and due to the very nature of uncertainty, it’s not likely to be anti-inductive. That’s why great investors like Buffett & Munger are as skilled at recognizing biases people have in the face of uncertainty as they are at doing finance. If you asked Charlie Munger what it took to be a good investor, I bet he’d be more likely to give you a rundown of biases than to offer anything quantitative.
I think this is why there will always be opportunities for high returns. Quantifiable correlations will always be bid away. But, there will always be unquantifiable uncertainty. Much of investing is earning rents on uncertainty, so that if you’re even slightly skilled at picking the right uncertainties, you can make huge returns. It seems to me that finance seems to either quantify uncertainties into risk models or pretends they aren’t important. But, for an individual investor they can be the most important thing to consider, and due to the very nature of uncertainty, it’s not likely to be anti-inductive. That’s why great investors like Buffett & Munger are as skilled at recognizing biases people have in the face of uncertainty as they are at doing finance. If you asked Charlie Munger what it took to be a good investor, I bet he’d be more likely to give you a rundown of biases than to offer anything quantitative.