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you just confirmed what keeps people from uderstanding this truth: confirmation bias. you just picked one person out of billions of investors. what is more imp

by gcb0 10y ago

you just confirmed what keeps people from uderstanding this truth: confirmation bias. you just picked one person out of billions of investors. what is more improbable? that he is flipping a coin 40 times and got head all the time or that billions of people cant see what he sees? also, buffet is the perfect example of why you should not invest, as he beats the market by not investing in the market.

valuearb 10y ago
Buffett has always invested in the market. The last half of his career he has made many private investments, but his fortune was built on public stock market investing. His average returns with the Buffett Partnership were in excess of 35% a year. That's not coin flipping. The odds of a 35% return when the stock market is returning 10% is probably closer to one in a hundred. doing that for a decade straight is insane. Then follow it with 40+ years where he beat the market every year but a couple, and not barely crushing on average by over 10% year (probably 10-1 against each year), even when handicapped by an enormous portfolio. (1/100)^10*(1/10)^40=?
hrzn 10y ago
> what is more improbable? that he is flipping a coin 40 times and got head all the time or that billions of people cant see what he sees? Actually, the probability of getting a head 40 times is 1/2^40, which is 1 in about 1.1 trillion. If we assume there are 1 billions investors overall, the probability that at least one wins 40 times (which is the probability that one or several Warren Buffet could appear by luck in this simple model) is about 0.00091. So yeah, in this particular phrasing of the question, with this model, the less likely option is to flip a coin and get head 40 times and the more likely option is that there is something else, like talent.
- felipemnoa 10y ago
  >>Actually, the probability of getting a head 40 times is 1/2^40, which is 1 in about 1.1 trillion I bet that the odds of beating the market 40 times are even worse since it is not a simple binary choice. The better analogy would be to choose the correct face of a 6 sided dice 40 times in a row, or even better a 100 sided dice. Calculate the odds for that! (I'm too lazy to do it myself)
- giardini 10y ago
  hrzn says:"So yeah, in this particular phrasing of the question, with this model, the less likely option is to flip a coin and get head 40 times and the more likely option is that there is something else, like talent." Before concluding "talent" is responsible, you must exclude other possibilities in the "something else" category (e.g., intelligence, insider information, control of upstream/downstream resources, etc.). Wealth allows access to resources unavailable to those w/o wealth.
  - hrzn 10y ago
    I Absolutely agree. Overall it's probably a mix of many things like luck, talent, insider information, ability to go against dominant investing ideas, where you start in life (if you are wealthy at birth that's equivalent to many coin-flips), etc.
felipemnoa 10y ago
>>You just confirmed what keeps people from understanding this truth: confirmation bias. It seems a bit hard to believe that this is just confirmation bias. What are the odds that he guesses correctly almost 40 times in a row? It is possible but not likely. If he is not really as good as we think he is then you could also say that he is doing insider trading and he just hasn't been caught. Honestly I don't buy the theory that he is just extremely lucky.
- cafebabbe 10y ago
  People winning the lottery (what is it already? 1 chance in 300 millions ?) must be very good at lottery.
  - felipemnoa 10y ago
    Now win it 40 times in a row.
    - cafebabbe 10y ago
      Not comparable - beating the market one year is quite probable.
      - dsacco 10y ago
        Your analogy is a poor comparison. Winning the lottery is not like picking stocks because it's almost perfectly efficient. No player in a lottery has any insight about what the winning numbers will be that, let alone an insight that other players don't have. It's an absolute black box. I know what you're thinking. "The stock market is a random walk! Efficient market hypothesis!" But the market is not a black box. You can legally gain insight that other participants don't have and use that insight to profit. Other people have done the math in this thread. The human population would need to be orders of magnitude larger than it is now, and every human would need to be an active, failing market participant, in order for the successful traders we see being the result of chance.
  - 10y ago
77pt77 10y ago
> you just confirmed what keeps people from uderstanding this truth: confirmation bias. More like just world falacy in this case. It's everywhere in all things social. Some religions even incorporate it (Hinduism, Buddhism and Calvinism come to mind)

by gcb0 10y ago

valuearb 10y ago

Buffett has always invested in the market. The last half of his career he has made many private investments, but his fortune was built on public stock market investing. His average returns with the Buffett Partnership were in excess of 35% a year. That's not coin flipping. The odds of a 35% return when the stock market is returning 10% is probably closer to one in a hundred. doing that for a decade straight is insane. Then follow it with 40+ years where he beat the market every year but a couple, and not barely crushing on average by over 10% year (probably 10-1 against each year), even when handicapped by an enormous portfolio. (1/100)^10*(1/10)^40=?

hrzn 10y ago

> what is more improbable? that he is flipping a coin 40 times and got head all the time or that billions of people cant see what he sees? Actually, the probability of getting a head 40 times is 1/2^40, which is 1 in about 1.1 trillion. If we assume there are 1 billions investors overall, the probability that at least one wins 40 times (which is the probability that one or several Warren Buffet could appear by luck in this simple model) is about 0.00091. So yeah, in this particular phrasing of the question, with this model, the less likely option is to flip a coin and get head 40 times and the more likely option is that there is something else, like talent.

felipemnoa 10y ago
>>Actually, the probability of getting a head 40 times is 1/2^40, which is 1 in about 1.1 trillion I bet that the odds of beating the market 40 times are even worse since it is not a simple binary choice. The better analogy would be to choose the correct face of a 6 sided dice 40 times in a row, or even better a 100 sided dice. Calculate the odds for that! (I'm too lazy to do it myself)
giardini 10y ago
hrzn says:"So yeah, in this particular phrasing of the question, with this model, the less likely option is to flip a coin and get head 40 times and the more likely option is that there is something else, like talent." Before concluding "talent" is responsible, you must exclude other possibilities in the "something else" category (e.g., intelligence, insider information, control of upstream/downstream resources, etc.). Wealth allows access to resources unavailable to those w/o wealth.
- hrzn 10y ago
  I Absolutely agree. Overall it's probably a mix of many things like luck, talent, insider information, ability to go against dominant investing ideas, where you start in life (if you are wealthy at birth that's equivalent to many coin-flips), etc.

felipemnoa 10y ago

>>You just confirmed what keeps people from understanding this truth: confirmation bias. It seems a bit hard to believe that this is just confirmation bias. What are the odds that he guesses correctly almost 40 times in a row? It is possible but not likely. If he is not really as good as we think he is then you could also say that he is doing insider trading and he just hasn't been caught. Honestly I don't buy the theory that he is just extremely lucky.

cafebabbe 10y ago
People winning the lottery (what is it already? 1 chance in 300 millions ?) must be very good at lottery.
- felipemnoa 10y ago
  Now win it 40 times in a row.
  - cafebabbe 10y ago
    Not comparable - beating the market one year is quite probable.
    - dsacco 10y ago
      Your analogy is a poor comparison. Winning the lottery is not like picking stocks because it's almost perfectly efficient. No player in a lottery has any insight about what the winning numbers will be that, let alone an insight that other players don't have. It's an absolute black box. I know what you're thinking. "The stock market is a random walk! Efficient market hypothesis!" But the market is not a black box. You can legally gain insight that other participants don't have and use that insight to profit. Other people have done the math in this thread. The human population would need to be orders of magnitude larger than it is now, and every human would need to be an active, failing market participant, in order for the successful traders we see being the result of chance.
- 10y ago

77pt77 10y ago

> you just confirmed what keeps people from uderstanding this truth: confirmation bias. More like just world falacy in this case. It's everywhere in all things social. Some religions even incorporate it (Hinduism, Buddhism and Calvinism come to mind)