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Compounding Knowledge

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Re: Compounding Knowledge

#11

Post by stakhanov »

cm2187 wrote: post #3
stakhanov wrote: post #2

I wonder to what extent Warren Buffet is Warren Buffet because of how he thinks and acts (like all of these non-fiction authors selling books by using his name would have us believe), and to what extent he is the product of media selection bias. -- If you take a large enough group of people who take risky stakes that are large enough (like the world of financial asset management), then one of them is bound to be as s…

Except that he has been consistently successful over a very long period, unlike, say a Paulson who one could claim got lucky in 2008.

A thought experiment: Say I have a database with 1024 e-mail addresses. I split them in two groups. I send an e-mail to 512 of them saying "tomorrow, IBM is going to go up". To the other 512, I send an e-mail saying "tomorrow, IBM is going to go down". The next day, IBM is up, and I discard from my database the 512 people to whom I've just sent an incorrect stock tip. Then I repeat. I send an e-mail to 256 people saying "tomorrow, Microsoft is going to go up", and so forth. ...at the end of the process I have someone who I've just sent 10 correct stock tips to. -- From the point of view of that person, I have been CONSISTENTLY successful. So that doesn't really mean anything.

Also: There is a saying: You only have to get rich once. It is much easier, if you come into money at one point in your life, to hold on to it, than it is to repeatedly go from zero to hero, since capital has a tendency to create more capital, and a lack of capital has a tendency to prevent you from accumulating any.

I know it goes against the mindset of the American entrepreneurially-minded crowd here. But it's a thought.

Re: Compounding Knowledge

#12

Post by boombust »

cm2187 wrote: post #3
stakhanov wrote: post #2

I wonder to what extent Warren Buffet is Warren Buffet because of how he thinks and acts (like all of these non-fiction authors selling books by using his name would have us believe), and to what extent he is the product of media selection bias. -- If you take a large enough group of people who take risky stakes that are large enough (like the world of financial asset management), then one of them is bound to be as s…

Except that he has been consistently successful over a very long period, unlike, say a Paulson who one could claim got lucky in 2008.

While you are right, I think the parent's idea if that with a large enough sample, even if every actor is making decisions randomly, you will get actors that will just crush it.

I mean Warren Buffet invested in Apple about a year ago based on the idea that they have a sticky brand and went so far as to say that iPhones were underpriced (which is just flat out wrong given how poorly they sold relative to predictions). . .and it turned out to be a terrible investment decision (so far). While I find it hard to believe that WB is all luck I think you can't dismiss that argument entirely based on his track record, no matter how successful.

Re: Compounding Knowledge

#13

Post by samsepia »

stakhanov wrote: post #2

I wonder to what extent Warren Buffet is Warren Buffet because of how he thinks and acts (like all of these non-fiction authors selling books by using his name would have us believe), and to what extent he is the product of media selection bias. -- If you take a large enough group of people who take risky stakes that are large enough (like the world of financial asset management), then one of them is bound to be as s…

If they all behaved purely randomly WB would be a high sigma event - he's got to be loaded in some way - the issue here is which of WB's properties are behind his financial success - one strategy would be to emulate him as accurately as possible in all his idiosyncrasies or to use a more scientific method (e.g. looking at common traits among agents of his class).

Re: Compounding Knowledge

#14

Post by stakhanov »

boombust wrote: post #12
cm2187 wrote: post #3

Earlier quoted context omitted.

Except that he has been consistently successful over a very long period, unlike, say a Paulson who one could claim got lucky in 2008.

While you are right, I think the parent's idea if that with a large enough sample, even if every actor is making decisions randomly, you will get actors that will just crush it. I mean Warren Buffet invested in Apple about a year ago based on the idea that they have a sticky brand and went so far as to say that iPhones were underpriced (which is just flat out wrong given how poorly they sold relative to predictions).…

Well, if you take the random-chance/selection-bias as the core of a snowball and add to it the various mechanisms which mean that the game of asset management is rigged in favour of the manager, then I think there is something to this. For example, asset managers get a part of their income from a MANAGEMENT fee which is a percentage of the assets under management, that they collect regardless of whether the fund actually does well. If you get a few bets right, make a name for yourself, more people will be putting money into your funds, and it all turns into a self-fulfilling prophecy.

Re: Compounding Knowledge

#15

Post by senthil_rajasek »

stakhanov wrote: post #2

I wonder to what extent Warren Buffet is Warren Buffet because of how he thinks and acts (like all of these non-fiction authors selling books by using his name would have us believe), and to what extent he is the product of media selection bias. -- If you take a large enough group of people who take risky stakes that are large enough (like the world of financial asset management), then one of them is bound to be as s…

Buffett shows how investors like him are not random in this lecture,

https://en.m.wikipedia.org/wiki/The_Superinvestors_of_Graham...

Re: Compounding Knowledge

#16

Post by vp8989 »

keiferski wrote: post #10

This concept is essentially the reason why “being able to quickly google the answers to questions” is inferior to “learning, knowing and remembering the answer.” The former treats a piece of information as an independent, context-free item, while the latter allows you to “digest” the information and understand the answer at a deeper level, to the point where it changes the types of questions you ask. Unfortunately ou…

There is also, practically, a massive gulf between:

1) Being vaguely aware that something exists and knowing you can Google for it.

2) Having such a deep, intuitive understanding of said thing that you can actually use knowledge of that thing to solve complex problems.

Re: Compounding Knowledge

#17

Post by dwighttk »

stakhanov wrote: post #2

I wonder to what extent Warren Buffet is Warren Buffet because of how he thinks and acts (like all of these non-fiction authors selling books by using his name would have us believe), and to what extent he is the product of media selection bias. -- If you take a large enough group of people who take risky stakes that are large enough (like the world of financial asset management), then one of them is bound to be as s…

Not over the time period he has been successful. Or at least the longer he lasts as a successful person doing what he does the less likely he's just acting at random. It's possible to get 1000000 heads in a row flipping a fair coin, but around 20 I'm going to be suspicious.

edit: With Buffet, he's not actually getting everything right, so I guess a better metaphor would be like 70% heads over 1000000 flips... more likely under random circumstances, but still pretty suspicious.

Re: Compounding Knowledge

#18

Post by q-base »

keiferski wrote: post #10

This concept is essentially the reason why “being able to quickly google the answers to questions” is inferior to “learning, knowing and remembering the answer.” The former treats a piece of information as an independent, context-free item, while the latter allows you to “digest” the information and understand the answer at a deeper level, to the point where it changes the types of questions you ask. Unfortunately ou…

This is only correct reasoning if you assume that every time someone google's something, they do so from a clean slate.

They are not either or. You do not need to know facts. You need to know how to recognize good and bad answers.

Re: Compounding Knowledge

#19

Post by dwighttk »

stakhanov wrote: post #11
cm2187 wrote: post #3

Earlier quoted context omitted.

Except that he has been consistently successful over a very long period, unlike, say a Paulson who one could claim got lucky in 2008.

A thought experiment: Say I have a database with 1024 e-mail addresses. I split them in two groups. I send an e-mail to 512 of them saying "tomorrow, IBM is going to go up". To the other 512, I send an e-mail saying "tomorrow, IBM is going to go down". The next day, IBM is up, and I discard from my database the 512 people to whom I've just sent an incorrect stock tip. Then I repeat. I send an e-mail to 256 people say…

Except Buffet has been emailing everyone every year since 1962; unless he has a way to pick branching timelines.

Re: Compounding Knowledge

#20

Post by q-base »

stakhanov wrote: post #11
cm2187 wrote: post #3

Earlier quoted context omitted.

Except that he has been consistently successful over a very long period, unlike, say a Paulson who one could claim got lucky in 2008.

A thought experiment: Say I have a database with 1024 e-mail addresses. I split them in two groups. I send an e-mail to 512 of them saying "tomorrow, IBM is going to go up". To the other 512, I send an e-mail saying "tomorrow, IBM is going to go down". The next day, IBM is up, and I discard from my database the 512 people to whom I've just sent an incorrect stock tip. Then I repeat. I send an e-mail to 256 people say…

Fun thought experiment. Made me smile even though the direct relation to Buffet perhaps is a little vague.

But your second saying about only getting rich once is probably closer to the truth.

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