You can beat the market.*

[clifp]

Really interesting article about Nobel Laurette Paul Samuelson and Warren Buffett. Paul Nobel Prize is for his efficient market theory.
But he actually bought a lot of Berkshire Hathway stock and so while he advocated passive investing he was actually an active investor

https://www.wsj.com/articles/what-y...arren-buffetts-smartest-investors-11545411745

*If you are super talented.

 

[OldShooter]

IIRC it has been five years or more since Buffet has beat his benchmark.

Also see "When Genius failed"

 

[Closet_Gamer]

You begin a search for talented monkeys that can flip coins and generate more heads than tails.

You line up 100 monkeys. After 5 years flipping, 80 of the monkeys are more or less 50/50, 10 of the monkeys are exceedingly stupid monkeys with lots of tails. But ten of your monkeys are more talented and get lots of heads.

You fire 90 of the monkeys but keep the 10 top performers. You then recruit another 90 monkeys and start again. After 5 more years of flips, 90 of your monkeys once again are unexceptional or bad performers. Interestingly, this 90 now includes 9 of your former all stars. 1 monkey is at the top of the pack in both runs.

You once again fire 90 of the monkeys and keep the top 10 heads-flippers which includes your now two-time all star. You are fond of 5 of the now mediocre monkeys -- they seem smart and smile when you come in the room -- so you give them another go thinking they just had a bad break.

Entire industries are born tracking the performance of the monkeys. There is a flipping cable channel with a morning show called "The Daily Flip" and another called "Fast Flip."

At this point, the special monkeys begin to demand LOTS of bananas.

Meanwhile, another monkey emerges that promises to delivers 50% heads and 50% tails for 1/10 the number of bananas...other monkeys ridicule his acceptance of mediocrity.

You do this several more times.

If that one monkey continues to hang around he is either a super-lucky monkey or his name is Warren Buffett and he actually does know how to flip to get more heads than the other monkeys. He appears to do this by flipping fewer times, selecting coins that are slightly mis-weighted, and judging the wind.

The 50/50 monkey is named Jack Bogle.

Both the Bogle monkey and Buffett monkey are heralded as geniuses.

People worry that the Buffett monkey is getting old and will die soon.

People worry the Bogle monkey has trained legions of other monkeys who are taking over the world. People can now get monkeys to deliver 50/50 for 1/1000 the number of bananas. The world gnashes its teeth that the coin-flipping/banana market is going to become unstable...

...but the siren song of extra bananas continues to attract new monkeys to the coin flipping game.

One monkey begins to offer a triple leveraged coin contract where one head will count as 3 and one tail will count as 3. This is only for sophisticated coin flipping buyers who track recent coin flipping results and know when to push the monkeys to flip faster.

Other people build robot monkeys that can flip faster than real monkeys. They also try to re-use coins that just came up heads when another monkey flipped it.

Monkeys begin to flip coins make of copper, plastic, wood, ... they will flip anything.

Let the coin flipping continue!

(It made me smile to write this, I hope it made you smile to read it.)

 

[OldShooter]

Of course. Despite mountains of data, surprisingly few people understand that it is basically monkeys flipping coins. The illustration I like to use is 10,000 monkeys each flipping eight times. About 40 will have eight heads in a row and will be anointed "genius monkey" --- until they flip some more. I use 10,000 because that was approximately the number of mutual funds in the US last time I saw a number.

In defense of Warren Buffet, though, I suggest that people read his bio "Snowball." What you will find is that he did not make his money from flipping coins; he made it with some clever maneuvering and clever management of companies that he owned 100%. That part of his history is very interesting stuff. We think of him today as someone who is buying Apple, selling IBM, etc. but that is not the real Buffet and in fact he has not been too successful at it. What he is successful at these days, though, is self-promotion. (As evidence I offer the annual letter and the annual stockholder circus in Omaha.) I enjoy him because he spins off very quotable aphorisms, but I don't think of him as a particularly successful monkey aka stock investor.

Re Bogle, the fact that he is adulated as an investing guru is somewhat of a puzzle to me. He is a guy who popularized the index fund (Wells Fargo invented it) to the benefit of millions of us, yes. But what track record would justify his current seat on an "investing genius" pedestal? Again, though, the guy is good for some pithy aphorisms and I like him for that. But as an investing monkey? I don't know that he has ever played that game.

 

[Closet_Gamer]

The main contribution of the Bogle monkey was realizing that he was a member of pack of very expensive monkeys. His genius was in marketing the fact that it was just a pack of monkeys. Perhaps he evolved

Yes, Warren Buffett's original insight about lashing an investing company to an insurance company was brilliant. He also has historically had a preference for actually owning the companies and operating them for the long term. That is a big difference.

 

[VanWinkle]

The main contribution of the Bogle monkey was realizing that he was a member of pack of very expensive monkeys. His genius was in marketing the fact that it was just a pack of monkeys. Perhaps he evolved

Yes, Warren Buffett's original insight about lashing an investing company to an insurance company was brilliant. He also has historically had a preference for actually owning the companies and operating them for the long term. That is a big difference.

Good point Closet_Gamer. I also consider Warren to be a business owner and not necessarily an investor. Using the Insurance model of reserving large amounts of "cash" for gain was a great way to increase wealth.

VW

 

[jazz4cash]

I’m interested in a reference for Wells Fargo inventing the index fund.

 

[MRG]

I’m interested in a reference for Wells Fargo inventing the index fund.

John McQuown and*David G. Booth*of*Wells Fargo, and*Rex Sinquefield*of the*American National Bank*in Chicago, established the first two Standard and Poor's Composite Index Funds in 1973. Both of these funds were established for institutional clients; individual investors were excluded. Wells Fargo started with $5 million from their own pension fund, while*Illinois Bell*put in $5 million of their pension funds at American National Bank. In 1971,*Jeremy Grantham*and Dean LeBaron at Batterymarch Financial Management "described the idea at a Harvard Business School seminar in 1971, but found no takers until 1973. Two years later, in December 1974, the firm finally attracted its first index client."

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

 

[redduck]

You begin a search for talented monkeys that can flip coins and generate more heads than tails.

You line up 100 monkeys. After 5 years flipping, 80 of the monkeys are more or less 50/50, 10 of the monkeys are exceedingly stupid monkeys with lots of tails. But ten of your monkeys are more talented and get lots of heads.

You fire 90 of the monkeys but keep the 10 top performers. You then recruit another 90 monkeys and start again. After 5 more years of flips, 90 of your monkeys once again are unexceptional or bad performers. Interestingly, this 90 now includes 9 of your former all stars. 1 monkey is at the top of the pack in both runs.

You once again fire 90 of the monkeys and keep the top 10 heads-flippers which includes your now two-time all star. You are fond of 5 of the now mediocre monkeys -- they seem smart and smile when you come in the room -- so you give them another go thinking they just had a bad break.

Entire industries are born tracking the performance of the monkeys. There is a flipping cable channel with a morning show called "The Daily Flip" and another called "Fast Flip."

At this point, the special monkeys begin to demand LOTS of bananas.

Meanwhile, another monkey emerges that promises to delivers 50% heads and 50% tails for 1/10 the number of bananas...other monkeys ridicule his acceptance of mediocrity.

You do this several more times.

If that one monkey continues to hang around he is either a super-lucky monkey or his name is Warren Buffett and he actually does know how to flip to get more heads than the other monkeys. He appears to do this by flipping fewer times, selecting coins that are slightly mis-weighted, and judging the wind.

The 50/50 monkey is named Jack Bogle.

Both the Bogle monkey and Buffett monkey are heralded as geniuses.

People worry that the Buffett monkey is getting old and will die soon.

People worry the Bogle monkey has trained legions of other monkeys who are taking over the world. People can now get monkeys to deliver 50/50 for 1/1000 the number of bananas. The world gnashes its teeth that the coin-flipping/banana market is going to become unstable...

...but the siren song of extra bananas continues to attract new monkeys to the coin flipping game.

One monkey begins to offer a triple leveraged coin contract where one head will count as 3 and one tail will count as 3. This is only for sophisticated coin flipping buyers who track recent coin flipping results and know when to push the monkeys to flip faster.

Other people build robot monkeys that can flip faster than real monkeys. They also try to re-use coins that just came up heads when another monkey flipped it.

Monkeys begin to flip coins make of copper, plastic, wood, ... they will flip anything.

Let the coin flipping continue!

(It made me smile to write this, I hope it made you smile to read it.)

First, the above post is so clever and well done it did make me smile.

Now, what I have to contribute is less clever and certainly less well done: "Hear! Hear!, yea, less clever!" "Less well done!"

It seems that I have been unable to get 100 monkeys to line up, let alone flip a coin. However, I was able to get a few of the smartest monkeys to do this:

https://youtu.be/wQ2nVL1-XFk

 

[Closet_Gamer]

First, the above post is so clever and well done it did make me smile.

Now, what I have to contribute is less clever and certainly less well done: "Hear! Hear!, yea, less clever!" "Less well done!"

It seems that I have been unable to get 100 monkeys to line up, let alone flip a coin. However, I was able to get a few of the smartest monkeys to do this:

https://youtu.be/wQ2nVL1-XFk

First off, thanks! I'm glad I made you smile.

Secondly, that video is fantastic. Appreciate you sharing it.

 

[redduck]

First off, thanks! I'm glad I made you smile.

Secondly, that video is fantastic. Appreciate you sharing it.

Just to set the record straight (assuming it needs to be straightened) the only connection I have with the video is that I found it on YouTube and thought it was relevant. So, I can't take credit for the video being fantastic but I will take credit for sharing it. I think I can take credit for that.

 

[NW-Bound]

Monkeys begin to flip coins make of copper, plastic, wood, ... they will flip anything...

Nowadays, it is flipping bits. Why bother with real assets?

Bits weigh nothing, and cost practically nothing to store (although safeguarding them from hackers takes some work and money).

You would ask why anyone would want to steal bits, but the fact that they do makes you scratch your chin, wondering if they actually have some real values.

 

[NW-Bound]

Forgot to add:

Some monkeys do not want to flip anything at all. They just take their coins and go home to bury them in their backyard, or hide them under the mattress.