May 11, 2014

FM 019: Expected Value Formula – The Missing Key To Building Wealth with Billy Murphy

59 minutes

Click here to download the transcript of Billy's top tips to use expected value to build your wealth!

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Wealth is math.

That's bad news for math phobics, but it's great news for the rest of us because it means there are rules and science behind how wealth building works. It isn't random luck.

In Episode 19 of the Financial Mentor podcast we'll explore the most essential math principle to wealth building – the expected value formula.

This essential principle eludes most people because we inherently think in terms of probabilities – the likelihood of something occurring. It could be an investment going up or a business going bust. Either way, you most likely think in terms of the probability of the event occurring, and that is unfortunate.

Why? Because wealth is built according to expectancy – which is probability times payoff.

It's an entirely different way of thinking that produces surprising results. Discover how expectancy will literally determine the financial outcome of your life, and how you can use this uncommon knowledge to make smarter, more profitable investment decisions.

Related:

Why you need a wealth plan, not an investment plan.

In this episode you will discover:

How a career as a professional poker player shaped Billy's view on traditional investing.

The difference between gambling and investing.

Why variance is a dangerously misleading measure of risk that can cost you a fortune.

The concept of “edge” in investing or “competitive advantage” in business.

How increasing sample size can lower risk, but only if you have positive expectancy.

The essential difference between asset wealth and cash flow wealth.

Why EV, or the expected value formula, permeates all forms of wealth building – paper assets, business, and real estate.

How to use the expected value formula for every business and financial decision you'll make.

The many dimensions to risk management revealed by a deep understanding of expectancy.

How to make more by risking less.

How diversification, when done incorrectly, can become di-worse-ification.

How the pursuit of safety can put you at even greater risk.

Why all expectancies are not created equal, and how that spells opportunity for you.

The dangerous illusion of results, and why expectancy is actually more important.

How recency bias causes you to make losing investments.

The two essential skills you must develop to invest with greater profit and reliability.

How to use risk management skills to raise your expectancy.

The right (and wrong) time to avoid analysis-paralysis in the due diligence process and just pull the trigger.

How to test any investment using the “cocktail napkin test”.

How missing a positive EV investment is mathematically equivalent to negative EV, and avoiding negative EV is mathematically equivalent to positive EV.

Why insurance makes good business sense, even when it has a negative expected value.

The right and wrong way to use insurance to manage negative expectancy risk.

and much more….

Resources and Links Mentioned in this Session Include:

Billy's web site is ForeverJobless.com

Billy's poker web site is BlueFirePoker.com

My financial coaching information

Billy's EV:Millionair's Math post.

The 7 Steps To 7 Figures group coaching curriculum.

A collection of articles on this site about risk management

The key difference between gambling and investing.

Investment due diligence articles on this site.

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The One Decision That Can Make Or Break Your Financial Future

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Yes! Tell Me About Expectancy Wealth Planning strategy

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By Todd R. Tresidder

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