The 1975 Buffett memo that saved the Washington Post's pension
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The 1975 Buffett memo that saved the Washington Post's pension
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Re: The 1975 Buffett memo that saved the Washington Post's pension
#2A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill."
Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill.
For 100 stock fund managers buying and selling stocks, statistics tells us that 50 of them will do better than the market averages (and 50 will do worse). And a few of the managers will do very well indeed, but not because of skill. In fact, one can design a blind computer model that buys and sells stocks randomly, using pseudorandom numbers to make the decisions, and half the accounts will come out ahead of the averages, and a small number will do much better than the averages, just as in real life -- all because of chance.
More here: http://arachnoid.com/equities_myths
Re: The 1975 Buffett memo that saved the Washington Post's pension
#3A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
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.
Re: The 1975 Buffett memo that saved the Washington Post's pension
#4A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
What is the market? A bunch of fund managers. So your critique about not beating the median like saying half of all hockey players are worse than the median and so hockey is just a game of chance. You have to fix your prior. Track performance for some period of time. Then track the winners. This will show whether it's a game of skill or chance.
Re: The 1975 Buffett memo that saved the Washington Post's pension
#5A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
> For 100 stock fund managers buying and selling stocks, statistics tells us that 50 of them will do better than the market averages (and 50 will do worse).
50 will do better/worse than the MEDIAN of that GROUP OF 100 fund managers, not the market averages.
Re: The 1975 Buffett memo that saved the Washington Post's pension
#6Meta: QZ is utterly unreadable to me on both desktop and mobile. Fortunately there's Readability.
Re: The 1975 Buffett memo that saved the Washington Post's pension
#7A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
Warren Buffett once wrote an article about the points you are making: http://www.tilsonfunds.com/superinvestors.pdf. Interesting read
Re: The 1975 Buffett memo that saved the Washington Post's pension
#8Meta: QZ is utterly unreadable to me on both desktop and mobile. Fortunately there's Readability.
More meta: the article uses lowercase l to represent the digit 1.
Re: The 1975 Buffett memo that saved the Washington Post's pension
#9A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
What is the market? A bunch of fund managers. So your critique about not beating the median like saying half of all hockey players are worse than the median and so hockey is just a game of chance. You have to fix your prior. Track performance for some period of time. Then track the winners. This will show whether it's a game of skill or chance.
The hockey analog doesn't hold if you can replace any given player with a stochastic robot, which is what stock picker programs (and dart-throwing monkeys) have demonstrated.
Re: The 1975 Buffett memo that saved the Washington Post's pension
#10A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
You can say that about many things. Do Musk and Messi have "skill" or is their success just chance?