Let's break down the math again with the exact same context, but this time apply it to the field of investing and why neglecting base rates is one of the top 5 cognitive errors. Let's also assume that you possess a 95% accuracy in your due diligence research (the inside view), while only 1 in every 100 publicly listed companies possesses an economic moat (the outside view, or the base rate). Prior Probability: Only 1 out of every 100 companies without a wide and durable economic moat succeeds in generating excess profits over time and isn't disrupted by competition or substitution risk. False Positives: Out of the 99 companies that will ultimately fail to defend their profits, your 95% accuracy in due diligence research — also known as the inside view — will incorrectly flag about 5 companies as future winners. True Positives: Out of the 1 company that will actually succeed in generating long-term excess profits, the research you perform will correctly flag that 1 company. Total Positive Results: You get about 6 companies flagged as "buys" or "winners" in total, which means 1 true positive plus 5 false positives. So what is the final math? The chance that a positively flagged, moatless company is actually the rare true compounder is (1/6), which is about 16.7%. Stated differently, even with a highly accurate research skill (superior selection), the overwhelming base rate of failure for moatless companies means the vast majority of your "buy" signals will still be value traps.