The Misunderstood "Winner's Logic": Why You Can Still Get Rich Even If Half Your Decisions Are Wrong?

Chapter 6 of "The Psychology of Money" reveals an ultimate truth in the investment world: you can be wrong half the time and still make a fortune. (It feels counterintuitive. I often feel like life is just one mistake leading to another, falling into a vicious cycle).

In this chapter, the author discusses the "Long Tails" effect. So what is the long tail effect? The book provides several classic examples:

1. The "Disney Rule": One home run is enough to offset 400 strikeouts.

In the mid-1930s, Disney was actually struggling. He produced over 400 animated short films, most of which lost money, leaving the company heavily in debt. The turning point came from just one movie—"Snow White." It made a whopping $8 million in 1938, not only paying off all debts but also allowing Disney to purchase the studio it still uses today.

In business and investing, a few extreme "tail events" determine the outcome. You don't need 400 good ideas; you just need to catch one "Snow White" among those 400 attempts to pay for all the failures.

2. The stock market is actually a "failure factory."

We often think of index funds (like the Russell 3000) as synonymous with stability. But the data is shocking: since 1980, 40% of the companies in this index have actually failed (dropped over 70% and never recovered). So why has the index still risen 73-fold? It's all thanks to the 7% of super-performing stocks (like Amazon, Apple), which not only covered the losses of the 40% but also drove the entire market's rise.

The takeaway for retail investors: Even professional indices are full of lousy companies. So don't feel incompetent because you bought one or two wrong stocks; it's completely normal.

3. The Chris Rock Effect: We only see the glamorous ending.

When you watch comedy legend Chris Rock perform on Netflix, you think he's a genius who never makes mistakes. What you don't see is him trying out jokes in small New Jersey bars, often bombing, awkwardly flipping through notes to cut material. So-called legends are just those who have filtered out a few successful moments from countless failures. Even Warren Buffett himself admits that he has owned 400-500 stocks in his lifetime, but only 10 of them actually made him big money.

💡 Golden quotes worth writing down in your trading journal:

"You can be wrong half the time and still make a fortune."

"Being right or wrong isn't important; what's important is how much you make when you're right and how much you lose when you're wrong."

Stop doubting yourself just because a few stocks in your account are losing money. In this game, failure is the norm. You don't need to win every time; you just need to ensure that when you win, the win is large enough to cover all your stop-losses. This is the power of the "long tail"—the tail (the very few victories) determines where the dog (the overall return) goes.

I have this desire 🤩 to want every single stock to make money. It's a problem; I need to change.

$Rocket Lab(RKLB.US) $Liberty Energy(LBRT.US) $Global X Copper Miners(COPX.US) $Microsoft(MSFT.US)