The 1975 Buffett memo that saved the Washington Post's pension • Hacker News Board

Re: The 1975 Buffett memo that saved the Washington Post's pension

#81

Post by moments » Sat, Aug 17, 2013, 4:54 AM UTC

gnaritas wrote: post #34

moments wrote: post #3

Earlier quoted context omitted.

Thank you for the interesting link. >statistics tells us that 50 of them will do better than the market averages (and 50 will do worse) This is a common misunderstanding, but actually 50% will do better than the median not the average. Averages can be dominated by extreme events, so more than 50% can do better (or worse) depending on the skew.

Median is an average, as is mean and mode. Saying median not the average makes no sense. You mean median not the mean. All three are different kinds of averages.

I never realized that the median is an average... interesting. So any average can be dominated by extreme events, except the median average.

Then we are discussing averages, in general. So, the common misconception would be:

-Averages are dominated by the median, and deviation from the mean is symmetric.-

Re: The 1975 Buffett memo that saved the Washington Post's pension

#82

Post by robotcookies » Sat, Aug 17, 2013, 5:27 AM UTC

lutusp wrote: post #69

huherto wrote: post #64

Earlier quoted context omitted.

I think the point of the article is that is difficult to distinguish between luck and skill. (Or even a combination) But skill is still involved. Not doubt some people are smart and knowledgeable and some are not. Following your example I can imagine that there is a mechanism (I wouldn't call it surefire) that can improve your odds. But that mechanism is difficult to acquire, difficult to transfer and not very scalea…

> I think the point of the article is that is difficult to distinguish between luck and skill. Not difficult, impossible. It cannot be established scientifically. No control group, no meaningful controls. > Following your example I can imagine that there is a mechanism (I wouldn't call it surefire) that can improve your odds. And people who write worthless "secrets of the winners" books rely on this very assumption (…

> It would remain secret in perpetuity, the owner(s) of the secret would use it to either drain the market of its capital or foment public doubt about market fairness...

If this 'secret' could only be applied in small amounts, then the owner couldn't drain the market. Why do you think Buffett believes large funds can't outperform?

You assume any such 'secret' is infinitely scaleable. That's an incorrect assumption.

Insider trading is an advantage that exists but doesn't fall into your #1. Has it 'drained the market' or stopped businesses from using the stock market?

Re: The 1975 Buffett memo that saved the Washington Post's pension

#83

Post by [deleted] » Sat, Aug 17, 2013, 5:48 AM UTC

lutusp wrote: post #51

maerF0x0 wrote: post #14

and yet he himself is an example of exactly the opposite mentality. He has been an outlier manager for decades and would have been a great choice of manager for anyone he would take money from. He effectively takes new money whenever his holdings pay dividends and reinvests it successfully. Roughly speaking he's returned 100% (vs 50% for the Sp500) in 10yrs giving about a 7.2% return rate. He consistently beats the m…

> He consistently beats the market and then claims that "managers" cannot. But he isn't beating the market -- he's beating the pants off his followers, people who dutifully buy the same stocks he does. It's the announcement effect -- Buffett buys a given stock, Buffett is a winner, so everyone responds by buying the same stock: self-fulfilling prophecy. The irony is that the timing of the groupie-purchases assures th…

[deleted]

Re: The 1975 Buffett memo that saved the Washington Post's pension

#84

Post by YokoZar » Sat, Aug 17, 2013, 5:54 AM UTC

r0s wrote: post #54

The factor I think he missed: All those managers timing trades in their random way has a randomizing effect on the system overall. But I'm not an economist, any ideas if or how that influence manifests?

In aggregate, it wouldn't much matter since randomness would cancel itself out. So broad index funds wouldn't see that volatility.

At shorter scales, however, randomness like that would add volatility to individual stocks, so you'd see more random results for returns among small portfolios -- thus creating quite a few genuinely lucky fund managers.

Re: The 1975 Buffett memo that saved the Washington Post's pension

#85

Post by ellyagg » Sat, Aug 17, 2013, 5:55 AM UTC

lutusp wrote: post #51

maerF0x0 wrote: post #14

and yet he himself is an example of exactly the opposite mentality. He has been an outlier manager for decades and would have been a great choice of manager for anyone he would take money from. He effectively takes new money whenever his holdings pay dividends and reinvests it successfully. Roughly speaking he's returned 100% (vs 50% for the Sp500) in 10yrs giving about a 7.2% return rate. He consistently beats the m…

> He consistently beats the market and then claims that "managers" cannot. But he isn't beating the market -- he's beating the pants off his followers, people who dutifully buy the same stocks he does. It's the announcement effect -- Buffett buys a given stock, Buffett is a winner, so everyone responds by buying the same stock: self-fulfilling prophecy. The irony is that the timing of the groupie-purchases assures th…

The insult here--"groupie-purchases"--suggests you understand Buffett's existence is a serious blow to your case. As you implicitly acknowledge with your hypothesis of the "announcement effect", the null hypothesis is that Buffett beat the market. It's time you hold yourself to the same standard you demand elsewhere in this thread and prove that "groupies" from 40 years ago maintaining their positions all these years account for Buffett's long term rate of return.

Re: The 1975 Buffett memo that saved the Washington Post's pension

#86

Post by [deleted] » Sat, Aug 17, 2013, 6:03 AM UTC

lutusp wrote: post #79

elliptic wrote: post #71

Earlier quoted context omitted.

And yet Ed Thorpe, from 1969-88, had 227 months where he made money, and 3 where he lost. Over that time frame, he had a mean return of well north of 15%, with a standard deviation of 4%. What precisely did you prove? Edit - your arguments are incoherent - I, or most others who claim that some people can consistently beat the market, are not relying upon some mythical, eternal method. You're correct in that any such…

> And yet Ed Thorpe, from 1969-88, had 227 months where he made money, and 3 where he lost. First, he didn't beat the market average 227 times in a row -- for most of those periods, he didn't lose money, but then a buy & hold investor also didn't lose money. A meaningful comparison would have to compare his outcomes with that for a buy & hold investor riding the ascending market value by holding a boring, geriatric i…

[deleted]

Re: The 1975 Buffett memo that saved the Washington Post's pension

#87

Post by jacques_chester » Sat, Aug 17, 2013, 6:05 AM UTC

refurb wrote: post #72

porter wrote: post #26

Warren Buffet also said: "I’d be a bum on the street with a tin cup if the markets were always efficient”

I think one particular problem with the strong-form efficient market hypotheses is this: A stock should already be priced for all of the publicly available information. However, that information has to be analyzed and interpreted. That's the catch. "Today company XYZ announced their purchase of Chinese company ABC." There are probably many different ways to interpret that information. Maybe the purchase will result i…

The EMH doesn't propose that participants have future knowledge. It says that current prices reflect current information and that in the long run, all participants regress to the mean.

Re: The 1975 Buffett memo that saved the Washington Post's pension

#88

Post by robotcookies » Sat, Aug 17, 2013, 6:13 AM UTC

jacques_chester wrote: post #80

robotcookies wrote: post #45

The title is incorrect because Buffett doesn't say playing the market is futile. In fact, he clearly states he believes a few will outperform due to skill (but that you can't distinguish which outperformers did so on skill versus luck). What he does say in the quoted part is that a large fund of say 20 billion likely can't outperform due to it's size. That is a big difference from saying that it's futile to play the…

> Buffett has always felt efficient market theory is wrong People often refute the EMH without understand that it is a family of hypotheses, from the Strong to the Weak form, with a great deal of subtlety in their concept and meaning. Buffet's argument in the linked excerpts is actually pretty close to a weak form of the EMH: all participants start with broadly similar information and capabilities, so performance nat…

That's a good point. Many people who don't believe in the strong version do actually fall into the weak form.

Re: The 1975 Buffett memo that saved the Washington Post's pension

#89

Post by elliptic » Sat, Aug 17, 2013, 6:16 AM UTC

lutusp wrote: post #79

elliptic wrote: post #71

Earlier quoted context omitted.

And yet Ed Thorpe, from 1969-88, had 227 months where he made money, and 3 where he lost. Over that time frame, he had a mean return of well north of 15%, with a standard deviation of 4%. What precisely did you prove? Edit - your arguments are incoherent - I, or most others who claim that some people can consistently beat the market, are not relying upon some mythical, eternal method. You're correct in that any such…

> And yet Ed Thorpe, from 1969-88, had 227 months where he made money, and 3 where he lost. First, he didn't beat the market average 227 times in a row -- for most of those periods, he didn't lose money, but then a buy & hold investor also didn't lose money. A meaningful comparison would have to compare his outcomes with that for a buy & hold investor riding the ascending market value by holding a boring, geriatric i…

It is difficult to imagine what sort of evidence will convince you. All sorts of behavior is possible under all sorts of unrealistic models.

I'd also like to note the irony of your snarky comment about wishing that those who disagree with you ought to study some math, given the background of managers like Jim Simons.

Edit: > First, he didn't beat the market average 227 times in a row -- for most of those periods, he didn't lose money, but then a buy & hold investor also didn't lose money. A meaningful comparison would have to compare his outcomes with that for a buy & hold investor riding the ascending market value by holding a boring, geriatric index fund

The stock market rose by about 8 or 9% annually during that time. Dismissing his 227 positive months requires absurd contortions, like positing that his firm would invest in the stock market or t-bills for 11 months out of the year, and then make a series of large bets in the remaining month. Given that he made, I believe, 10k bets a year, the disparity in bet size must be massive to even come close to supporting your hypothesis.

Re: The 1975 Buffett memo that saved the Washington Post's pension

#90

Post by jholman » Sat, Aug 17, 2013, 6:17 AM UTC

lutusp wrote: post #66

jholman wrote: post #59

Earlier quoted context omitted.

You're mistaken on both counts, even though your top-level point is essentially correct. On the first count, you're mistaken because there's no reason to assume that the distribution is symmetric. This doesn't damage your point , but as klodoph says, your actual example numbers are not necessarily representative. You'll note that this minor mistake in your comment has attracted a legion of minor corrections, all of t…

> On the first count, you're mistaken because there's no reason to assume that the distribution is symmetric. First, I never said that, and second, that assumption isn't necessary -- the location of the mean won't change, and the mean is the thing you would need to beat, not the median. The reason is that market indices measure the mean (the sum of all the values divided by the count of values), not the median (the m…

This appears to have turned into a pissing match, and I was unable to contact you (your website's message page is crashing).

Email me if you actually care about replies. Either way, have a good evening.