6 ms·

That is doubling 20 times. If 100 million people flipped 20 coins, 95 would get 20 heads. There are approximately 25M millionaires in the US.

bluesign 3y ago
Problem is flipping the coin 20 times. I don’t think even 1 in 100 million would do that.
- sdfghswe 3y ago
  > Problem is flipping the coin 20 times. I don’t think even 1 in 100 million would do that. 2^20 = 1048576 So roughly 1 in 1 million. You're off by 100x.
  - EddTheSDET 3y ago
    I believe OP is talking about the human emotion of flipping that coin the 19th time (or indeed the 18th, or 17th...). While the math might be as simple as doubling x times it's very different to actually do it!
    - sdfghswe 3y ago
      Are you forced to bet everything on every flip?
      - sokoloff 3y ago
        If your goal is to double your money on each successful flip (as implied in [0]), then yes. [0] https://news.ycombinator.com/item?id=37586995 https://news.ycombinator.com/item?id=37586995
      - AdamN 3y ago
        I think that's the implication: https://en.wikipedia.org/wiki/St._Petersburg_paradox https://en.wikipedia.org/wiki/St._Petersburg_paradox https://en.wikipedia.org/wiki/Martingale_(betting_system) https://en.wikipedia.org/wiki/Martingale_(betting_system)
      - brigadier132 3y ago
        That's where skill comes in and invalidates the point that it's all luck.
sdfghswe 3y ago
Suppose to have an idiotic model like for example "investing is flipping a coin". Then you calculate how many coin flips waiting a certain amount of time corresponds to. Then you conclude, see, these N people are the lucky coin flippers. Now suppose of all the crazy investing philosophies in existence, you learn that all N greatest investors (or "N luckiest coin flippers" according to you), suppose you learn all of them have the exact same investing philosophy. Would this make you reconsider whether your "investing is coin flipping" model is a useful model?
- Luc 3y ago
  I might as well link to it for those who haven't read it: "The Superinvestors of Graham-and-Doddsville" https://www8.gsb.columbia.edu/sites/valueinvesting/files/files/Buffett1984.pdf https://www8.gsb.columbia.edu/sites/valueinvesting/files/fil...
  - sdfghswe 3y ago
    I take quiet satisfaction imagining that I say really smart stuff I read elsewhere, get dismissed by morons, and then the morons 3 years later read the exact same idea from a reputable source and go "hold on a second, that's what that guy on those forums was saying" :-)
    - sokoloff 3y ago
      I think you're likely wildly over-estimating the number of times that last thought enters into people's minds (even if it's the case, I think it doesn't occur to most people).
- hiddencost 3y ago
  Typically their model is regulatory capture.
  - robertlagrant 3y ago
    Regulatory capture doesn't generate money.
lisper 3y ago
That's not a very useful model for four reasons: First, there are many more possible outcomes of making an investment than 100% gain or 100% loss. Second, the outcome of an investment is a function of time. And third, what matters is not the actual number, but the purchasing power that number represents, so you have to measure your returns relative to inflation. You can "guarantee" yourself a positive return by buying T-bills, but the average rate on those is 2% and the average inflation rate is higher than that. So you can "double" your money in ~35 years, but your actual spending power will almost certainly go down. Finally, investment returns necessarily regress to a mean that is the growth rate of the overall economy, which historically has been positive. So to the extent that you are flipping a coin, it's a coin that is biased towards positive returns.
- hiddencost 3y ago
  It's what is commonly called a baseline.
- vladimirralev 3y ago
  True, but with some tweaks this is a representative model. You can just carry any non-100% gain/loss "swimlane" as a game still-in-progress. Eventually on larger time scale, puchasing power adjusted or not, a swimlane of an investment will certainly hit one of those outcomes. The outcome is a function of time but a large number of swimlanes guarantees that you can sample any time and observe the same distribution of settled outcomes. You can reasonably assume that the probability of transition from unsettled to settled state at any time is constant. You could model it as markov process. In fact there are many economic agent models doing something like this (OLG models where generations of economic agents overlap in time as child/worker/retiree). Even though these models make sense only on generational scale, with enough agents you can see the micro-structure being consistent in smaller time scales by "ticking" or sampling at smaller time steps the markov process. The spending power issue could be ignored as "without loss of generality" in most cases or the thesis could be restated in terms of something that preserves purchasing power as part of the coin toss game. Investment returns mean-revert only if allowed to by policy. Policy can override economic forces for very long generational time scales, thus making it still relevant for individuals. And I personally don't agree with (or don't understand) these models being used for micro-structure analysis, but I think macro-level interpretations such as wealth distribution may be valid.
xyzelement 3y ago
// There are approximately 25M millionaires in the US. Really? Population of the US is like 350M. Is 7% of US population millionaires? Like, one of out every 14 people out there? I guess that's believable but counter-intuitive.
- missedthecue 3y ago
  Remove minors from the population, and it's 1 in 10 americans that are millionaires.
- nly 3y ago
  Property wealth
- GartzenDeHaes 3y ago
  One Million Dollars isn't exactly a lot of money anymore. Seems as if single family homes cost nearly a million in many larger cities.
- ReptileMan 3y ago
  If average house prices in desirable densely populated areas are above 1M$ it is not hard to have a lot of millionaires.
- BurningFrog 3y ago
  The US is still much wealthier than other industrial nations.
- mcguire 3y ago
  https://www.census.gov/content/dam/Census/library/publications/2023/demo/p70br-183.pdf https://www.census.gov/content/dam/Census/library/publicatio... "The median household wealth in 2021 was $166,900. The 10th percentile of household wealth was zero dollars, meaning 1 in 10 households had wealth of zero dollars or less. The 90th percentile of household wealth was $1,623,000, meaning 1 in 10 households had wealth exceeding $1.6 million."
  - xyzelement 3y ago
oh_sigh 3y ago
To be clear, you need 100 million people to risk *100% of their wealth on a coinflip* 20 times in a row.
rufus_foreman 3y ago
>> If 100 million people flipped 20 coins, 95 would get 20 heads If they were starting out with $2 million and betting it on a coin flip, they would owe 37% income tax on the winnings of each flip. And try finding someone to bet you $1 trillion on a coin flip. Charlie Munger's strategy was not to start out with $2 million and bet it with a 0.0001% chance of winning $2 trillion and a 99.9999% chance of losing it all. Some people invest money out of each paycheck, study how to best allocate that money between the investment options available to them, do that for many decades, and become millionaires. Some people buy a $2 lottery ticket and become millionaires that day. They both just got lucky, am I right?

bluesign 3y ago

Problem is flipping the coin 20 times. I don’t think even 1 in 100 million would do that.

sdfghswe 3y ago
> Problem is flipping the coin 20 times. I don’t think even 1 in 100 million would do that. 2^20 = 1048576 So roughly 1 in 1 million. You're off by 100x.
- EddTheSDET 3y ago
  I believe OP is talking about the human emotion of flipping that coin the 19th time (or indeed the 18th, or 17th...). While the math might be as simple as doubling x times it's very different to actually do it!
  - sdfghswe 3y ago
    Are you forced to bet everything on every flip?
    - sokoloff 3y ago
      If your goal is to double your money on each successful flip (as implied in [0]), then yes. [0] https://news.ycombinator.com/item?id=37586995 https://news.ycombinator.com/item?id=37586995
    - AdamN 3y ago
      I think that's the implication: https://en.wikipedia.org/wiki/St._Petersburg_paradox https://en.wikipedia.org/wiki/St._Petersburg_paradox https://en.wikipedia.org/wiki/Martingale_(betting_system) https://en.wikipedia.org/wiki/Martingale_(betting_system)
    - brigadier132 3y ago
      That's where skill comes in and invalidates the point that it's all luck.

sdfghswe 3y ago

Suppose to have an idiotic model like for example "investing is flipping a coin". Then you calculate how many coin flips waiting a certain amount of time corresponds to. Then you conclude, see, these N people are the lucky coin flippers. Now suppose of all the crazy investing philosophies in existence, you learn that all N greatest investors (or "N luckiest coin flippers" according to you), suppose you learn all of them have the exact same investing philosophy. Would this make you reconsider whether your "investing is coin flipping" model is a useful model?

Luc 3y ago
I might as well link to it for those who haven't read it: "The Superinvestors of Graham-and-Doddsville" https://www8.gsb.columbia.edu/sites/valueinvesting/files/files/Buffett1984.pdf https://www8.gsb.columbia.edu/sites/valueinvesting/files/fil...
- sdfghswe 3y ago
  I take quiet satisfaction imagining that I say really smart stuff I read elsewhere, get dismissed by morons, and then the morons 3 years later read the exact same idea from a reputable source and go "hold on a second, that's what that guy on those forums was saying" :-)
  - sokoloff 3y ago
    I think you're likely wildly over-estimating the number of times that last thought enters into people's minds (even if it's the case, I think it doesn't occur to most people).
hiddencost 3y ago
Typically their model is regulatory capture.
- robertlagrant 3y ago
  Regulatory capture doesn't generate money.

lisper 3y ago

That's not a very useful model for four reasons: First, there are many more possible outcomes of making an investment than 100% gain or 100% loss. Second, the outcome of an investment is a function of time. And third, what matters is not the actual number, but the purchasing power that number represents, so you have to measure your returns relative to inflation. You can "guarantee" yourself a positive return by buying T-bills, but the average rate on those is 2% and the average inflation rate is higher than that. So you can "double" your money in ~35 years, but your actual spending power will almost certainly go down. Finally, investment returns necessarily regress to a mean that is the growth rate of the overall economy, which historically has been positive. So to the extent that you are flipping a coin, it's a coin that is biased towards positive returns.

hiddencost 3y ago
It's what is commonly called a baseline.
vladimirralev 3y ago
True, but with some tweaks this is a representative model. You can just carry any non-100% gain/loss "swimlane" as a game still-in-progress. Eventually on larger time scale, puchasing power adjusted or not, a swimlane of an investment will certainly hit one of those outcomes. The outcome is a function of time but a large number of swimlanes guarantees that you can sample any time and observe the same distribution of settled outcomes. You can reasonably assume that the probability of transition from unsettled to settled state at any time is constant. You could model it as markov process. In fact there are many economic agent models doing something like this (OLG models where generations of economic agents overlap in time as child/worker/retiree). Even though these models make sense only on generational scale, with enough agents you can see the micro-structure being consistent in smaller time scales by "ticking" or sampling at smaller time steps the markov process. The spending power issue could be ignored as "without loss of generality" in most cases or the thesis could be restated in terms of something that preserves purchasing power as part of the coin toss game. Investment returns mean-revert only if allowed to by policy. Policy can override economic forces for very long generational time scales, thus making it still relevant for individuals. And I personally don't agree with (or don't understand) these models being used for micro-structure analysis, but I think macro-level interpretations such as wealth distribution may be valid.

xyzelement 3y ago

// There are approximately 25M millionaires in the US. Really? Population of the US is like 350M. Is 7% of US population millionaires? Like, one of out every 14 people out there? I guess that's believable but counter-intuitive.

missedthecue 3y ago
Remove minors from the population, and it's 1 in 10 americans that are millionaires.
nly 3y ago
Property wealth
GartzenDeHaes 3y ago
One Million Dollars isn't exactly a lot of money anymore. Seems as if single family homes cost nearly a million in many larger cities.
ReptileMan 3y ago
If average house prices in desirable densely populated areas are above 1M$ it is not hard to have a lot of millionaires.
BurningFrog 3y ago
The US is still much wealthier than other industrial nations.
mcguire 3y ago
https://www.census.gov/content/dam/Census/library/publications/2023/demo/p70br-183.pdf https://www.census.gov/content/dam/Census/library/publicatio... "The median household wealth in 2021 was $166,900. The 10th percentile of household wealth was zero dollars, meaning 1 in 10 households had wealth of zero dollars or less. The 90th percentile of household wealth was $1,623,000, meaning 1 in 10 households had wealth exceeding $1.6 million."
- xyzelement 3y ago

oh_sigh 3y ago

To be clear, you need 100 million people to risk *100% of their wealth on a coinflip* 20 times in a row.

rufus_foreman 3y ago

>> If 100 million people flipped 20 coins, 95 would get 20 heads If they were starting out with $2 million and betting it on a coin flip, they would owe 37% income tax on the winnings of each flip. And try finding someone to bet you $1 trillion on a coin flip. Charlie Munger's strategy was not to start out with $2 million and bet it with a 0.0001% chance of winning $2 trillion and a 99.9999% chance of losing it all. Some people invest money out of each paycheck, study how to best allocate that money between the investment options available to them, do that for many decades, and become millionaires. Some people buy a $2 lottery ticket and become millionaires that day. They both just got lucky, am I right?