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What Do the Best Investors Do That the Rest Don’t?

behavioralvalueinvestor.substack.com

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Re: What Do the Best Investors Do That the Rest Don’t?

#41

Post by rwmj »

mg wrote: post #13

My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance. The article starts with a pho…

Berkshire Hathaway do actually own 16% of MSFT, about $400 billion if my maths is right.

Re: What Do the Best Investors Do That the Rest Don’t?

#43

Post by Archelaos »

mg wrote: post #13

My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance. The article starts with a pho…

> There must be many such investors. Are they all "better" than Munger and Buffett?

Your reasoning demonstrates that "better" is, strictly speaking, relative to a given set of criteria,[1] that are at least vaguely quantifiable and can be meaningfully (numerically?) combined[2] with each other.

I think that all these discussions who is "better" or "best" (strictly speaking or not) have their merrits. But not in the sense that we ever may arrive at a final, definite ranking. It is more of a recommendation to analyse a certain person's performance because something important might be learned from it.

[1] If we were to consider lottery tickets as "investments", the person who spent $1 and won $997,600,000 in the Powerball lottery in 2022[1.1] would be among the best investors of all time.

[1.1] https://en.wikipedia.org/wiki/Lottery_jackpot_records

[2] Does it make sense to ask whether Michael Jordan is a "better" sportsperson than Magnus Carlsen?

Re: What Do the Best Investors Do That the Rest Don’t?

#44

Post by Otek »

zone411 wrote: post #39
GuB-42 wrote: post #20

- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you…

Plenty of evidence contradicts the efficient market hypothesis, showing that it's possible to outperform the average. The market's late response to Covid is a case in point. The gambling analogy holds up only when you compare it to poker or sports betting, where you can make money if you're better than others.

Poker - sure. But sports betting?

Re: What Do the Best Investors Do That the Rest Don’t?

#46

Post by zone411 »

mg wrote: post #13

My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance. The article starts with a pho…

> Someone who would have invested in Microsoft 20 years ago and said "Hey, I am sure software will grow like mad! That's enough for me to know about the markets. From now on, all I will do is wait." would have been right. And would have seen about twice the return that Berkshire achieved. There must be many such investors. Are they all "better" than Munger and Buffett?

Using overall return as the sole comparison metric isn't really done when comparing managers. You can look at factors such as diversification, Sharpe and Sortino ratios, drawdowns...

Re: What Do the Best Investors Do That the Rest Don’t?

#47

Post by zone411 »

Otek wrote: post #44
zone411 wrote: post #39

Earlier quoted context omitted.

Plenty of evidence contradicts the efficient market hypothesis, showing that it's possible to outperform the average. The market's late response to Covid is a case in point. The gambling analogy holds up only when you compare it to poker or sports betting, where you can make money if you're better than others.

Poker - sure. But sports betting?

Yes, e.g. https://www.cbsnews.com/news/sports-bettor-billy-walters-win...

"Over a period of 39 years, Walters had only one losing year, with a 30-year winning streak"

Re: What Do the Best Investors Do That the Rest Don’t?

#48

Post by anonu »

GuB-42 wrote: post #20

- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you…

Your comment sounds cynical but I totally agree with you. As a long time (now ex) trader I can tell you that the professionals have a tremendous information advantage over the retail investor. And even then they don't make money consistently. Edge is everything.

Regarding insider info, I apply the cockroach theory: there's never just one. You see the SEC bring insider trading charges all the time. This is probably a fraction of what really goes on in the markets.

Re: What Do the Best Investors Do That the Rest Don’t?

#49

Post by chii »

GuB-42 wrote: post #20

- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you…

> if you follow these rules, you will mostly end up with reasonable market-rate returns.

which is good enough. You do not need to have outsized returns.

Re: What Do the Best Investors Do That the Rest Don’t?

#50

Post by mg »

zone411 wrote: post #46
mg wrote: post #13

My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance. The article starts with a pho…

> Someone who would have invested in Microsoft 20 years ago and said "Hey, I am sure software will grow like mad! That's enough for me to know about the markets. From now on, all I will do is wait." would have been right. And would have seen about twice the return that Berkshire achieved. There must be many such investors. Are they all "better" than Munger and Buffett? Using overall return as the sole comparison metr…

Depends on who does the comparison. And what is important to them. The Microsoft investor might say "I'm fine with the price going up and down a bit in the short term. Reducing that is not worth it for me to miss out on 50% of the ROI".

If you say Berkshire's performance is significantly exceptional when including those aspects in a combined performance indicator, then it is up to you to show that.

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