<story><title>Investing Is More Luck Than Talent</title><url>http://nautil.us/issue/44/luck/investing-is-more-luck-than-talent</url></story><parent_chain><item><author>jondubois</author><text>There are plenty of people who disagree about Buffet - Nassim Taleb who wrote &amp;quot;Fooled by Randomness&amp;quot; is among of those. Out of all the people who started investing in stocks in the 50s, it&amp;#x27;s not surprising that at least one of them turned out to be among the richest people in the world and kept getting it right every year.&lt;p&gt;If you have enough people throwing coins, you&amp;#x27;re going to get some people who keep getting heads over and over. Those few people who have a superior coin-tossing technique are probably not going to end up anywhere near the top - This is especially true if you believe in the rhetoric that people of high talent are &amp;quot;very rare&amp;quot;.&lt;p&gt;The sheer masses acting out of randomness will always beat out the few &amp;quot;very talented&amp;quot; individuals.&lt;p&gt;In &amp;quot;Fooled by Randomness&amp;quot;, the author alludes to the idea that the top people at any given time in any given field often got there through very little talent - It just happens that their approach was a good fit for their field at that particular time - As soon as some &amp;quot;black swan&amp;quot; event happens (and they always happen, eventually); these people tend to lose everything very, very quickly.&lt;p&gt;Also, the reason why Buffet gets it right most of the time these days is the same reason why George Soros gets it right most of the time; whenever either of these famous investors buys any stock, it becomes big news then all these other wealthy investors follow suit - Soon enough you have half of humanity rooting for&amp;#x2F;against that specific company&amp;#x2F;security so anything they do becomes a self-fulfilling prophecy.</text></item><item><author>valuearb</author><text>This article basically repeats old economic saws of dubious validity. The counter argument is Warren Buffett. Last I looked at it (going back to his Buffett Partnership days), he beat the market every year but one for his first 30 or 40 years. Even better, he was beating the market by an average of 20% a year during his partnership days, and something like 10% a year during his first 20 years running Berkshire Hathaway.&lt;p&gt;It&amp;#x27;s not only statistically impossible for Buffett to be a fluke, it&amp;#x27;s statistically impossible for him not to possess a a skill providing a substantial edge in market investing. Not a &amp;quot;1% a year&amp;quot; type skill.&lt;p&gt;Nowadays and for the last 20 years or so, Buffett has been managing hundreds of billions of dollars. The immense size of his portfolio restricts his opportunities to a far smaller pool of potential investments and his edge over the market has clearly declined because of that restriction. But he&amp;#x27;s still beating the market the vast majority of the time.</text></item></parent_chain><comment><author>graeme</author><text>&amp;gt;There are plenty of people who disagree about Buffet - Nassim Taleb who wrote &amp;quot;Fooled by Randomness&amp;quot; is among of those.&lt;p&gt;I can&amp;#x27;t find the source, but I believe Taleb was misquoted (or misinterpreted) on Buffet. Taleb indeed makes the general argument that most high performers are just lucky. But he doesn&amp;#x27;t say that &lt;i&gt;all&lt;/i&gt; are. He just says: you can&amp;#x27;t tell.&lt;p&gt;As for Buffet, he complained he hadn&amp;#x27;t meant Buffet was unskilled. He meant Buffet was skilled &lt;i&gt;and&lt;/i&gt; had luck. Which is a plausible interpretation. You likely need skill to get to Buffet&amp;#x27;s level. But those with the skill of Buffet don&amp;#x27;t all end up at Buffet&amp;#x27;s outcomes: Buffet would be at the high end of the distribution of those that had his level of skill to work with.&lt;p&gt;At least that&amp;#x27;s how I interpreted it. I believe Taleb&amp;#x27;s subsequent commentary on this was in Black Swan or Antifragile. It involved the phrase &amp;quot;for Baal&amp;#x27;s sake&amp;quot; when complaining about how people had interpreting him as saying &amp;quot;Buffet is pure luck&amp;quot;.</text></comment>
<story><title>Investing Is More Luck Than Talent</title><url>http://nautil.us/issue/44/luck/investing-is-more-luck-than-talent</url></story><parent_chain><item><author>jondubois</author><text>There are plenty of people who disagree about Buffet - Nassim Taleb who wrote &amp;quot;Fooled by Randomness&amp;quot; is among of those. Out of all the people who started investing in stocks in the 50s, it&amp;#x27;s not surprising that at least one of them turned out to be among the richest people in the world and kept getting it right every year.&lt;p&gt;If you have enough people throwing coins, you&amp;#x27;re going to get some people who keep getting heads over and over. Those few people who have a superior coin-tossing technique are probably not going to end up anywhere near the top - This is especially true if you believe in the rhetoric that people of high talent are &amp;quot;very rare&amp;quot;.&lt;p&gt;The sheer masses acting out of randomness will always beat out the few &amp;quot;very talented&amp;quot; individuals.&lt;p&gt;In &amp;quot;Fooled by Randomness&amp;quot;, the author alludes to the idea that the top people at any given time in any given field often got there through very little talent - It just happens that their approach was a good fit for their field at that particular time - As soon as some &amp;quot;black swan&amp;quot; event happens (and they always happen, eventually); these people tend to lose everything very, very quickly.&lt;p&gt;Also, the reason why Buffet gets it right most of the time these days is the same reason why George Soros gets it right most of the time; whenever either of these famous investors buys any stock, it becomes big news then all these other wealthy investors follow suit - Soon enough you have half of humanity rooting for&amp;#x2F;against that specific company&amp;#x2F;security so anything they do becomes a self-fulfilling prophecy.</text></item><item><author>valuearb</author><text>This article basically repeats old economic saws of dubious validity. The counter argument is Warren Buffett. Last I looked at it (going back to his Buffett Partnership days), he beat the market every year but one for his first 30 or 40 years. Even better, he was beating the market by an average of 20% a year during his partnership days, and something like 10% a year during his first 20 years running Berkshire Hathaway.&lt;p&gt;It&amp;#x27;s not only statistically impossible for Buffett to be a fluke, it&amp;#x27;s statistically impossible for him not to possess a a skill providing a substantial edge in market investing. Not a &amp;quot;1% a year&amp;quot; type skill.&lt;p&gt;Nowadays and for the last 20 years or so, Buffett has been managing hundreds of billions of dollars. The immense size of his portfolio restricts his opportunities to a far smaller pool of potential investments and his edge over the market has clearly declined because of that restriction. But he&amp;#x27;s still beating the market the vast majority of the time.</text></item></parent_chain><comment><author>jacques_chester</author><text>A nitpick: Berkshire Hathaway don&amp;#x27;t publicise any stock purchases or sales and they don&amp;#x27;t comment on them. Specifically because they don&amp;#x27;t want to give out information that will drive up the price quickly.&lt;p&gt;I imagine that&amp;#x27;s grown harder and harder as time goes on, given the ability of HFT algorithms to spot big purchases in progress. But Buffett has always preferred outright purchases or special one-off deals (eg.  the Bank of America deal or  individually-negotiated insurance contracts).</text></comment>