Those who have knowledge, don't predict. Those who predict, don't have knowledge - Lao Tzu
Investing is not about predicting the future. Predictions are usually not accurate. We heard the famous ones: Bill Gates predicting nobody needed no more than 640KB of memory, Dow Jones 36,000, who needs cars when we have horses blah blah.
Yeah, how right. So what do we do if we do not want to predict?
We want to be prepared. This post serves to illustrate how.First we must accept that the future is unknown. It is a set of probabilities. We want to make sure that whichever future pans out, we will be okay. In mathematical terms, it means that the expected return is positive. In investing, we want to look for free options, or near-free options. In layman terms, it just means be prepared, don't anyhow bet.
It's easier to use an example, ...