BookYol

Concept

Tail Events

Tail events are the rare, extreme outcomes at the far ends of a distribution which, in Morgan Housel's account, drive most financial results: a few big wins pay for many small losses, so you can be wrong often and still do very well.

In statistics the tails are the edges of a curve, where outcomes are rare and large. Housel's point in The Psychology of Money is that in investing, business and careers the tails are not footnotes; they are most of the story. A small share of companies accounts for most of a stock market's long-run gains, while many others fade away. Walt Disney's studio spent years making cartoons that barely covered their costs before one film, Snow White, transformed its finances. Two lessons follow. First, being wrong a lot is normal: an investor or a founder can make many mediocre calls and still succeed, because the few that work outweigh the many that don't, as long as the losses stay small and survivable. Second, the moments that decide outcomes are rare. What you do on the few days when markets crash and everyone around you panics matters more than everything you do on thousands of quiet days. That is why Housel prizes the ability to do the ordinary, sensible thing while others lose their heads, and why judging yourself by single decisions, rather than by the whole spread of them, misleads.

A real-life example

Zeynep, who runs a bookshop in Eskişehir, has tried a string of side lines over eight years: stationery, a reading club, a café corner, gift boxes. Most barely covered their costs, and she closed each one quickly, losing little. A used-textbook exchange she started on a whim now brings in about 300,000 lira every autumn, more than all the others put together ever did. Counting attempts, she was wrong most of the time. Counting results, she was right where it mattered.

How to use it

  1. 1Judge your decisions as a portfolio over years, not one at a time, and expect many of them to be ordinary.
  2. 2Keep each experiment small enough that its failure costs little, so you are still in the game when the rare big win arrives.
  3. 3Write down today what you will do on the day markets fall sharply, so the decision that matters most is made calmly and in advance.