Glenn Bryer, Apple, Brier discussed on Invested: The Rule #1 Podcast

Automatic TRANSCRIPT

Debt but what nor that for now so you know these five things that i can. I can make a prediction about each of those five things in a probabilistic way. I can say I think there is a seventy five percent chance. That apple will have ten percent higher revenue in one year from now and i tend to make these on an annual basis and and then so step. One is making a probabilistic prediction. Step two is actually scoring that. Prediction was i right or not right. And so if i have a very high probability estimate and it turns out. I'm right that gives you the highest score in this. It's called brier score at based on glenn bryer. Who invented this. If i give a very high probability and i'm wrong. That gives me the worst score right. Because that's like you thought you knew what you're doing and you don't now in between those where you have low probabilities and it turns out right or wrong. That's not really worth a lot because you didn't really have much confidence of what you were saying right. So so what the trick is and this is why. This is such a good hack. Is that for every one ric data point of returns. Which is what. I get in a given here right like would apple stock do in this case i get five data points on these five key drivers that tell me. Do i know what i'm doing or not right. So if i'm if i'm wrong on all five of my predictions and yet the stock went up. I know that that was probably done luck right and then i should. I should probably not think that. I know what i'm doing quite as much like this is if you don't do this and you only looked at what it what the return was. You're setting yourself up for the big loss later because you think you know what you're doing and you get overconfident. You're measuring yourself. Only based on the market as opposed to be more shall we say reality based scrapyard. That is this exactly and we can get more data points on in a faster time period to see. Do we have luck versus skill. A true so we can conversely. Let's say that you you got five out of five predictions were right. You had high confidence in the stock went down. Well you should then realize oh man. That was kind of just bad luck. I know what i'm doing. I'm getting the right drivers and making the right predictions. I just didn't get the result that i want and but if i keep going i know that eventually luck tends to iron out and i think i should end up with a good result. I have some skill here and it's not just purely luck So i think that's especially early on as you're learning and tracking How you're developing. I think it's hugely important to do these type of exercises and it's a way to compare yourself to yourself which is the the we're looking for. Yeah and you can. you don't even have to. You don't even have to make an investment in it to track your predictions on it and like you could make predictions about different companies. Even if you don't own them to see. Do i have any luck or skill or do i have any you'll really in this in this game And it doesn't act-actually half the cost you. Anything tends to be better if you actually have a little skin in the game That makes it feel a little more real right as opposed to paper trading but Being able to get those data points sooner i think is hugely valuable. Let's leave it there. I love it. Jake taylor thank you so much. For being on the podcast. Thanks for sharing your years and years of work experience to develop these framework and these thoughts around process of investing. Really appreciate that you're bringing this out and And thanks for sharing it with me. I'm using it. it's fantastic. Well my pleasure daniel. Thanks for having me on and letting me Carry on about a topic. That i'm passionate about you and me. Both you guys go. Follow jake on youtube at five. Good questions jake. Where else can people find you. I i spend too much time on twitter at Handles farnum jake one and then yet check out the value after hours podcasts. That's a little. That's a couple of my my friends who are just tremendous and super smart Bill brewster earn until carlisle And we just once a week we get together and talk for an hour or and record it. Basically and not. Just sort of whatever's happening And then the book is good street if you want to book that out a lot of different things to a lot of ways to explore. If you're interested all right thanks so much and thanks everybody. Bye guys thanks for listening to invest it. If you enjoyed this episode you want more information or to listen to additional episodes. Visit our website at best podcast dot com and sign up for my virtual workshop. Right there spots are definitely limited for this event. I'm not kidding. They really are. They sell out very quickly. Everything discuss on this podcast by the way is either my opinion or it's daniels opinion and really important. It's not to be taken as investment advice. Because i am not your financial advisor nor have i considered your personal situation as your fight. Do -ciary remember. You're on your own here this podcasts for your entertainment and education only and i really hope you enjoyed it..

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