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Stock Market Basics 94: Expected Value, How to Think About Investment Decisions Through Probability 3-Line Summary Expected value is a concept that combines possible scenarios, probabilities, and potential gains or losses to estimate the average outcome of an investment decision. In stock investing, investors should consider not only upside potential, but also downside risk and the size of possible losses. A good expected value investment is not simply a stock with large upside, but a choice with a favorable balance between probability and risk-reward. Recommended Keywords expected value, probability thinking, scenario analysis, investment decision making, risk reward ratio, margin of safety, risk management, long term investing, business valuation, PER, DCF, stock market basics, investor psychology Table of Contents What Is Expected Value? Why Expected Value Thinking Matters in Investing The Relationship Between Expected Value and Scenario Analysis Why Risk-Reward Structure Matters Mo...

Stock Market Basics 93: Scenario Analysis, How Not to Bet on Only One Future 3-Line Summary Scenario analysis is a method of evaluating investments by dividing the future into optimistic, base, and conservative cases. It reflects the fact that growth rate, profit margin, discount rate, interest rates, economic conditions, and competition can change together. Investors can use scenario analysis to examine not only upside potential but also downside risk and margin of safety. Recommended Keywords scenario analysis, sensitivity analysis, business valuation, DCF, margin of safety, intrinsic value, investment risk management, growth rate, discount rate, PER, financial statement analysis, stock market basics, long term investing Table of Contents What Is Scenario Analysis? Sensitivity Analysis vs Scenario Analysis Why Investors Should Not Rely on Only One Future How to Build an Optimistic Scenario How to Build a Base Scenario How to Build a Conservative Scenario How to Reflect Economic Cycle...

Stock Market Basics 92: Sensitivity Analysis, How Valuation Changes When Assumptions Change 3-Line Summary Sensitivity analysis shows how much a company’s valuation changes when key assumptions such as growth rate, discount rate, and profit margin change. It helps investors avoid treating DCF or PER valuation results as one fixed answer. Investors can use sensitivity analysis to compare optimistic, base, and conservative scenarios and check whether there is enough margin of safety. Recommended Keywords sensitivity analysis, valuation, DCF, discount rate, growth rate, margin of safety, intrinsic value, scenario analysis, PER, ROIC, WACC, financial statement analysis, stock market basics, long term investing Table of Contents What Is Sensitivity Analysis? Why Sensitivity Analysis Matters in Investing DCF and Sensitivity Analysis How Growth Rate Changes Affect Valuation How Discount Rate Changes Affect Valuation How Profit Margin Changes Affect Valuation Terminal Value and Sensitivity Ana...