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Author: ZenvestorB Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1933  
Subject: Facts vs Fear Date: 11/10/2001 9:03 PM
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Hi Everybody,

I think a very instructive situation is being discussed over on the BRK board, starting around post 55711 related to BRK and serious risk.

As strange as it may seem, BRK itself is not immune to the spectrum of emotions from fear to greed that drives markets. I don't really want to get into whether BRK does or does not have any additional significant risk but I do think the board situation brings up a good chance to discuss the emphasis that Graham places on Fact.

While Graham is most often thought in strictly quant terms, I believe his biggest gift to investing theory was the distinction between estimation of fact based probability vs estimation based on speculation of future events.

Graham's emphasis on fact creates an environment where probabilities can be calculated or estimated. Without prior fact while one would think that though probability is deeply effected, possibility might still remain. My take is that though this might be correct in the literal sense, in the practical sense without a factual connection, possibility is not even assured.

For example, taking the example of a comet significantly hitting earth, since there is some evidence that this has happened before, the possibility is assured but the probability may be very low. On the other hand, I guess literally it's possible the earth could stop rotating, but since there are no facts to substantiate that it has happened, on a practical level it might as well be deemed impossible.

I think that Graham's emphasis on demonstrable fact is an extremely important concept that in itself helps the investor take advantage of hysteria's both fearful and optimistic.

ZB
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