I am trying to implement some new nomenclature here. We currently have a very simple binary classification system for posts: Off Topic (denoted by “OT”); and everything else (denoted by the absence of “OT”).I would like to move to a three-part system, where we have (i) fully Off Topic posts, denoted by the acronym “OT” (for, of course, Off Topic, (ii) fully On Topic posts, denoted by the unfortunately identical acronym “OT” (this time for On Topic, and (iii) things in between, denoted by the absence of “OT.” So I have implemented that daring new system with this post.* * * * * * * * * * * * * * * * * * * * Things have been going pretty well recently, so, being Irish, I was feeling melancholy. I moped around a while, entertaining my son with stories about why nobody today can match Al Kaline or Brooks Robinson, and why those good old days will never return, but it for some reason he seemed uninterested. So I filled a thermos with my Devil’s Brew Hot Chocolate – ground cacao beans, ground coffee beans, a healthy dollop of cayenne pepper, and a plug of tobacco for flavor; no sugar –and headed out to the old sycamore stump. It was perfect out there. The wind was roaring over the ridge, most of it howling well overhead but the edges plenty strong enough to make the leaves rustle and clatter around me. And it was bone dry, which is rare up here; from its relative warmth (about forty degrees Fahrenheit) I figure the wind must have been heated adiabatically as it blew in from the glacier-mountains of Greenland – sort of like those Santa Ana winds they get out in California, coming down off the high mountains out there. Well, you can probably figure out what happened next: I pulled out the old harp and started fooling around with “North Country Blues,” weaving the melody in with the leaves and the wind and the coyotes howling at the moon down in the hollow. And it was all pretty much OK, but I got to wondering . . . Do you think Dylan knew what he was doing with his songs? Did he really think that deeply? Did he have a plan, implemented through careful composition and painful drafting and redrafting of lyrics? Or did he just sit down and write a song, unleashing some sort of subconscious genius that showed up at such moments and was never evident at any other time? Let’s face it – his songs were acts of rare genius; pretty much everything I ever heard him say in interviews was incoherent and childish.Is that possible? Can someone act and sound like a lightweight in almost every theatre of life and then suddenly, in some transformative venue, become a genius for the ages? How about Newton? Malicious and mad --- scarcely able to discern reality from neurotic imaginings – until he sat down and thought about math and science; and then he was suddenly maybe the greatest mind our species has ever produced.Or Bobby Fischer? One of the worst and craziest human beings that I have ever seen – but there really has never been a chess player like him. He owned chess; he spoke the language, and his greatest contemporaries could only look upon his works and despair. “Calvin and Hobbes” is so wonderful; so calm and mature and whimsical . . . . Do not read any of Bill Watterson’s introductions, though; he is disappointing -- trivial, prickly and juvenile in prose.Or, I submit Van Gogh and rest my case.Where am I going with this? Well actually, I got sidetracked by the combination of “North Country Blues” and a melancholy state of mind. I was originally going to explain why my 88-year-old mother is staying with me (she saw an intruder using a crowbar to pry open her sliding glass door and instead of calling the police grabbed my father’s old rifle off the mantle and fired a couple of shots through the door, raising a whole host of issues). And I had a pretty interesting macroeconomic thought tying right in with that discussion, the kind that just perambulates around until one thing suddenly becomes another thing, and truth reveals itself in a grand and gentle way. It would have been beautiful and compelling; it would have enriched us all. Unfortunately, I got sidetracked out here on the stump and now I forget what I was going to say. So let’s just follow this other train of thought and see where it takes us. Given my age and short attention span, I do not really have any choice anyway and, as they say, if you can’t fix it, feature it.So, we were talking about genius and how it sometimes seems to emerge the same way mushrooms do, if you get my drift.And I wonder if there is any corollary to this in investing. Let’s start at an oblique angle and work our way into this idea; in fact, let’s start with an act of sacrilege: Do you think that maybe Warren Buffet was just lucky? OK, relax, breathe; count to 100 using only primes . . . .Look, suppose we had a million people flipping coins, and we asked each one to do twenty flips. Now, purely statistically, there is a good chance that one person will get 20 heads – maybe some guy in Fresno, for example. And, I am pretty sure that if that were to happen, he would have very good explanations for his success – the angle of his wrist, the starting position of the coin, his vigorous telekinetic push at just the right instant – but of course that is all hooey, right? He was just the lucky one – the one whose existence is predicted by the laws of probability, but whose particular identity cannot be predicted due to the random nature of the circumstances.(There is a great scam that uses this phenomenon, where a race handicapper will send out, for free, 1,024 emails predicting the outcome of a horse race between two horses. Half will predict Horse A; half will predict Horse B. Then, if Horse A wins, he will send another free prediction, of another race, to the 512 people who received the Horse A prediction for the first race. Half of these 512 people will receive a prediction of Horse C in the second race; half will receive a prediction of Horse D. And he will repeat this process for, say, eight races, after which there will be four people who have received eight straight correct predictions from our hero. He will then offer to sell them his prediction for the next race for $10,000. Assuming everybody bites, and he milks this to the max, he can sell a total of at least seven predictions (more if he hits a lucky streak once he is down to one customer), probably with escalating prices. But he did not know anything; he was just a statistical wizard on the order of Wendy (just checking to see if anyone actually is reading this other than my kids).) OK, back to our lucky coin-flipper: pretty soon he is featured on CNBC; he gets a nickname (the “Flipper of Fresno”) and a grouchy maverick sidekick named Charlie Curmudgeon, who basks in his reflected glory and writes books that are bought by literally dozens of people. And nobody notices that our hero’s coin-flipping results are pretty darn ordinary once his lucky streak ended – and much of the success that does follow that streak is due to the special flipping deals that he is able to strike based on his reputation.Now, couldn’t this be possible? After all, do you remember the legendary Bill Miller, who beat the S&P for fifteen straight years – and who then proceeded to lose to the S&P five of the next six years? That sure sounds like a variable governed by the rules of chance.People have an amazing ability to explain their successes in terms of their ability, foresight and effort, and their failures on the basis of chance, luck, and karma. But maybe, just maybe, it is all – every bit of it – explained by chance, luck and karma. Who is the smartest guy out there, in terms of investing? I think John Hussman is brilliant. It is hard to imagine someone being smarter than he is. But he is rated as a one-star fund manager by Morningstar – essentially one step above being tarred and feathered and run out of town -- and his performance has been pretty darn weak. Jeremy Grantham is brilliant, and he has done a lot of very visible things right over the decades, but even his performance is not staggeringly good.Seth Klarman is brilliant, right? Check out how his recent purchases have done.Maybe there is no such thing as a genius investor. Maybe the process is so random that the best one can do is avoid dumb mistakes and ride the winds of chance. Here is an alternative idea, even less attractive: maybe the overtly intelligent investors are like all of the professors scattered around the world who can analyze works of literature until the cows come home, but can’t write anything original that is worth the loss of a tree. Maybe the overtly, obviously intelligent investors are the Salieris of the investing world – intellect, form, precision, and no art, no results other than the random dictates of chance.And this raises (not “begs,” for the sake of all that is holy) the question of whether there are any investing Mozarts out there – any buffoons who somehow have a genius for investing. After all, the existence of a Salieri does not guarantee the existence of a Mozart.And, with that introduction, I would like to introduce you to my brother-in-law . . . . Just kidding. I do not know of any natural geniuses in the world of investing. But maybe we should be looking for them!Well, I do not really have any more to contribute on this topic. I suspect that we all would be better off, on average, just buying some diversified low cost funds (e.g., from the Vanguard family) and doing other things. But I cannot prove it, and if we did that, what would we talk about? Strip away the tightly focused macroeconomic content of this post, for example, and you are lucky if more than 98% of the original post remains.Not every question has an answer. Sometimes it doesn’t hurt to just let some random thoughts percolate along and see what emerges. Put another way, sometimes you just have to heap up the manure and hope a mushroom emerges. Anyway, it was getting very cold out there on that stump, and that whole Salieri/Mozart thing was kind of unsatisfying . . . then, for some reason, an old Kris Kristofferson lyric popped into my mind: there's still a lot of wine and lonely girlsIn this best of all possible worldsAnd that cheered me up.Now, I do not want to create a misapprehension; I am happily married and would not at this late stage dally with wine or women, but I still take great comfort in the thought that somewhere out there, just over the horizon, there are winsome lasses waiting to be wooed and fine wine waiting to be savored. Someone else will have to do the wooing and the savoring, but it is, metaphysically speaking, still a fine state of affairs.And now I think I will wander back inside and build a fire and talk with a certain someone about her itchy trigger finger.Just another investing day here on the ridge. . . . RichA Drumlin Daisy
Do you think Dylan knew what he was doing with his songs? Did he really think that deeply? Let’s start at an oblique angle and work our way into this idea; in fact, let’s start with an act of sacrilege: Do you think that maybe Warren Buffet was just lucky?People have an amazing ability to explain their successes in terms of their ability, foresight and effort, and their failures on the basis of chance, luck, and karma. But maybe, just maybe, it is all – every bit of it – explained by chance, luck and karma.======================Interesting commentary worthy of individual reflection for all of us.Regarding musicians and song-writing, the truly rich and famous tend to be dominated by two camps of artists. One camp consists of people whose process seems to make them more of a conduit for the material as it arrives from somewhere else -- they simply are there to perceive it, write it down and record it. Paul McCartney -- famous for waking up one morning and walking to the piano and playing the entire song Let It Be -- is one example. Neil Young describes his process in a similar vein. People in this camp are obviously capable of PERFORMING their material but, at least early in their career, can't really articulate HOW they composed it or what it drew from. Only after many years, some grow to understand the "theory" behind what they created.The other camp of rich and famous musicians literally studied enough of the tools of their craft that they can literally sit down and PLAN to assemble a song based upon the unique aspects of their instrument and the conventions of music (intros, verses, bridges, modulations, codas, etc.) Artists in this camp frequently report carrying around a notebook and tape recorder to ensure they capture EVERY small idea that occurs to them to avoid forgetting them since the big pearls of inspiration don't come all that often to them. Artists like this frequently state they literally approach song writing like you and I approach our 40 hour/week job. (They probably still have way more fun, but they literally have to consciously devout significant, consecutive hours on a scheduled basis to produce their work.)Regardless of what camp of creativity they belong to, I doubt most musicians can predict what material is going to click on a worldwide basis. There are lots of stories of artists and producers finishing a listen to a final track for the first time and saying "That's a hit!" but only in a sense very localized to place, market and time. I'm sure George Martin and the Beatles knew "She Loves You" was going to do well but I'm pretty sure none knew it would remain recognizable to the entire world 50 years later.Regarding investment success, the factors behind the performance and fame of individual investors is akin to the survival of large corporations on the NYSE. Does the continuous presence of a company on the NYSE somehow "prove" that the people who founded the company purposely set out to organize a business and a management team with the skills needed to survive 100 years? No way. It just means in a complex economy, there are a few businesses which wind up involved with certain products or functions which are essential to the larger economy over long periods of time. All the management and employees have to do is not get too greedy and screw it up and let someone else take them over or drive them out of business. If you read much of Warren Buffett's commentary over his career, he continually refers to having won the "ovarian lottery" by being born in America amidst a system that allowed someone with his particular analytical skill set to make a living by managing capital and companies at an abstract, hands-off layer. I think he produced much of his own "luck" by being humble enough to recognize the limits of his ability to predict performance and understanding how the system would work if you build in a buffer for your investments by maximizing the delta between current worth and purchase price. As he likes to say, he makes all of his money at buy-time. He only captures it at sell-time.In general, I think people DO over-rationalize their success in their career and their lives and over-attribute it to their own hard work and smarts. Clearly, there are cases where people had an idea, went against the stream of nearly everyone around them who thought it was foolish, persevered and made a fortune and achieved success and happiness pretty much on their own cuz no one else would buy into their idea. However, for most people, including most middle managers, execs and CEOs, they just bounced through a system that needs a certain amount of high-paid decision makers and they happened to be in the right place at the right time to land the gig. In a narrower set of cases, once in those gigs, they had the ability to influence their own pay and reach stratospheric levels of compensation not just 2x-3x or 20x-30x but 200x-300x that of most of us.In my case, my career and income track was altered about 13 years ago by a total chance conversation I had with a colleague who happened to be walking down my cubicle aisle on his last day before starting a new job at another company. I didn't know he was leaving so I wouldn't have thought to stop by for the conversation on my own and we weren't close friends at the time, just well-respected colleagues. After he mentioned where he was going, I half jokingly said "if you see anything when you get there that might be up my alley, lemme know." A month later, he did, I interviewed for a staff engineer position and took it. That new firm was a dot-com experiment that thought it was growing and had a lot of "other people's money" (temporarily) to throw around and wound up boosting my salary by over 50% and gave me a title I NEVER would have achieved at the stale company I left. That boost in pay and higher title helped land another gig after the dot-com startup failed which has kept my income at a level over TWICE what I was earning in that original job. All because one guy I casually knew happened to be making his farewell walk through the department at a time when I was in my cube rather than stuck in a meeting. I know 10-20 people just as technically savvy as me who didn't get that pay bump and have experienced a lot more volatility in their career track and income over the same period. I can take some of the credit for my good fortune but it would be delusional to believe no one else contributed (actively or unwittingly).WTH
ADD count to 100 using only primes . . . .That's impossible.BTW, for one of his birthdays, I gave my son the bound set (three volumes) of all the Calvin & Hobbes strips.Peter
But something in you manner or what you said made him remember you and your comment, and think of you when the job was available. And you did have something that made you overcome natural inertia, get up from your chair, and talk to him. So it wasn't all luck.
I would nominate Michael Burry as the closest to a "genius investor"that I know about in the last decade or so.http://en.wikipedia.org/wiki/Michael_Burry"Burry started Scion Capital, funded by a small inheritance and loans from his family.....Scion Capital ultimately recorded returns of 489.34 percent (net of fees and expenses) between its November 1, 2000 inception and June 2008. The S&P 500 returned just over two percent over the same period."Michael Lewis talks about him in The Big Short. Here's him giving the 2012nUCLA commencement speech:http://leverageacademy.com/blog/2012/06/24/fantastic-michael...V.
And this raises (not “begs,” for the sake of all that is holy) the question of whether there are any investing Mozarts out there – any buffoons who somehow have a genius for investing.If there are, chances are, they are not following someone else's supposedly successful approach. They likely will take in the breeze, the harp, the rare dry moment, the tobacco and a dollop of intuition.....then maybe back out the intuition....Poz
A common trait between Van Gogh, Dylan, Fischer and Michael Burry is that they have been diagnosed, or suspected to have Asperger's Syndrome, a mild form of autism that lends itself to great creativity, though "Aspies" tend to have significant difficulties with basic social graces.I think that would explain why Dylan sounds so obtuse in interviews, yet is a prolific songwriter of great import.Just a couple years ago, somebody mentioned that I seemed to possess traits similar to people with Asperger's Syndrome (mostly to her I seemed very insensitive to the emotions of others around me), and after some research, decided she was exactly right. It's been a revelation to find an accurate description for my mental makeup. (When one description of Asperger's says that Aspies obsess over things like train schedules and baseball statistics, and that's exactly what my first two obsessions in life were, then I knew I was onto something).I took some online tests of autism quotient (very high, but below typical Asperger's) and empathy quotient (very low, but above typical Asperger's), and now have a greater understanding of who I am. I interact OK with people, though I am considered weird by many. But I also am confident that I have some creative abilities, and some memory abilities, that most other people simply don't have. I can sense some things that others don't. On the other hand, I was never a highly valuable employee, since I didn't really have much interest or drive. I doubt I would be diagnosed as having Asperger's, since I don't suffer the extremes of depression and alienation as those who suffer acute distress. But it's clear I am a Half-Aspie, at a minimum. I read The Big Short. With respect to Michael Burry, who is a diagnosed Aspie, perhaps his gift was his ability to filter out all the nonsense and decipher the truth. Nowadays, with the reams of conflicting information, reading the tea leaves correctly is more difficult than ever.
BTW, for one of his birthdays, I gave my son the bound set (three volumes) of all the Calvin & Hobbes strips.We live in a CalvinBall world with CalvinBall economics.You are a good dad.;-)
nh You are a good dad.Thanks. At 18 he still brings them out to read now and then.Peter
Thanks for the link to Dr. Burry's speech and the article about him. The excerpt from Vanity Fair is also very interesting:http://www.vanityfair.com/business/features/2010/04/wall-str...I was particularly interested in his Aspergers. DD's oldest friend is a boy who has Aspergers, and his mom really needs hope in their daily struggles to keep his world going in a direction that's good for him. Having an example like this one is always a good thing.ThyPeace, thinks that folks have both Aspergers and integrity are some of the most valuable people our society will ever produce.
OK, back to our lucky coin-flipper: pretty soon he is featured on CNBC; he gets a nickname (the “Flipper of Fresno”) and a grouchy maverick sidekick named Charlie Curmudgeon, who basks in his reflected glory and writes books that are bought by literally dozens of people. And nobody notices that our hero’s coin-flipping results are pretty darn ordinary once his lucky streak ended – and much of the success that does follow that streak is due to the special flipping deals that he is able to strike based on his reputation.Now, couldn’t this be possible? After all, do you remember the legendary Bill Miller, who beat the S&P for fifteen straight years – and who then proceeded to lose to the S&P five of the next six years? That sure sounds like a variable governed by the rules of chance.People have an amazing ability to explain their successes in terms of their ability, foresight and effort, and their failures on the basis of chance, luck, and karma. But maybe, just maybe, it is all – every bit of it – explained by chance, luck and karma.Who is the smartest guy out there, in terms of investing? I think John Hussman is brilliant. It is hard to imagine someone being smarter than he is. But he is rated as a one-star fund manager by Morningstar – essentially one step above being tarred and feathered and run out of town -- and his performance has been pretty darn weak.Jeremy Grantham is brilliant, and he has done a lot of very visible things right over the decades, but even his performance is not staggeringly good.Seth Klarman is brilliant, right? Check out how his recent purchases have done.=======================================================There is a fallacy of logic here: the fact that Bill Miller, Jeremy Grantham, John Hussman, and Seth Klarman are all brilliant but are not infallible does not mean that Buffett's success is due to chance.In fact, this simplistic conclusion is colored by an obvious antipathy to Charlie Munger, which can be assumed, from previous postings, to be solely in response to his politics. After all, he is demonstrably no less brilliant than Miller, Hussman, Klarman, or Grantham.This post shows an embarrassing amount of ignorance.
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