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A sound investor invests when odds are much in favour of him (or when probability of winning far exceeds probablity of losing). Two analogies can be used to describe this.
Analogy One:- A baseball player only swings the bat when the ball is at good striking zone. When the ball is not in the striking zone, he does not swing the bat.
Analogy Two:- Horse racing betters are always given two extreme choices (a lousy horse with a high paying rate of 11-1 or an excellent horse with a lousy paying rate of 3-2). One knows that excellent horse will most likely win, but the paying rate is too low. A good horse better thus waits patiently for the paying rate of the excellent horse to increase (e.g. 4-2) before he makes his bets. When that high probability event occurs, he bets heavily on the excellent horse.
Application:- It is wise to think probability when doing investing. Always analyse carefully the probability of winning so that every investing decision is made with high probability of winning and low probability of losing. Focus on all available information when making an investing decision. The more information available to the investor, the more robust his determination of the probability of winning versus losing.
For example, when deciding which company to invest, consider only companies which have the highest probability of having excellent business economics in the long term. One does not know the future of a company, but at least one can do his homework to find out only the very best companies that have the highest probability of making good earnings for the long term (looking at long history of past financial performance and evaluating the future plans of a company).
When deciding the price to acquire the shares of a company, enter only at prices that gives the best rate of returns for the long term (usually undervalued prices at a large margin below the intrinsic value of a company). And should such prices come, invest heavily to capitalise on the highest probability of a good rate of return.
Combining the two important factors (selection of company and good stock price), investing becomes simple. Consider only investing in companies with highest probability of excellent business economics for the long term. Consider only investing most heavily at lowest possible stock price to lock in highest probability of excellent rate of returns.
<Think probability when making every single investing decision. If the probability of winning big far outweighs the probability of losing small, the decision is carried out. If the probability of winning is only marginally higher than probability of losing, the decision may not be a good one. In this case, inactivity is better than acting on the decision.>