Michael Mauboussin – The Babe Ruth Effect: Frequency Versus Magnitude - InvestingChannel

Michael Mauboussin – The Babe Ruth Effect: Frequency Versus Magnitude

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  • The portfolio manager found himself in an unusual position.
  • The portfolio manager’s explanation for the discrepancy underscores a lesson inherent in any probabilistic exercise: the frequency of correctness does not matter; it is the magnitude of correctness that matters.
  • The percentage of stocks that go up in a portfolio does not determine its performance, it is the dollar change in the portfolio.