Posts Tagged ‘Buffett’

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To many he is a hero. He is the investor extraordinaire, the man who is now ranked fourth richest in the world, thanks to his all-round savvy. He is, of course, Warren Buffett. But was he lucky?

What about George Soros for that matter? He may have defeated the Bank of England, made a fortune by betting against central banks, and may be attempting – riding on the back of his financial record – to present himself as possessing sound academic credentials, but was he lucky?

Have you ever played that game at a party, when you all stand up, and have to raise either your right or left hand. A judge then tells all those who put, say, their right hand up, to sit down. The rest once again have to choose between right and left hand. The judge decides again which half has to sit down. You keep going until there is only person left. This person is the winner.

With the benefit of hindsight, you can see how that winner made a series of good calls. Let’s say the winner got the call right seven times in a row. What are the odds of that? Well, to be precise they are one in 128.

Of course you know that it was down to luck. If there were 128 people at the party, the odds of any one person wining such a game were one in 128, but the odds that someone might win were 100 per cent.

Now make the game more complex. Involve derivatives and shorting, and leverage and balance sheets. And say the odds of success are one in six billion. In a planet of six billion people those odds will smile on one person, but were they any cleverer than the winner of our party game?

That is harsh. Buffett and Soros are clever. And they are savvy, and there was more to their success than pure luck, but how much was luck, and how much was judgement? How much was down to a particular strategy happening to be the right strategy for the time? In an economy that is steadily growing over time, an investor who believes in a taking long term bets may well be a winner. Supposing instead that your investment strategy involved betting on companies named after a fruit, and you launched your strategy about ten years ago. You would have done pretty well. Does that mean your strategy will always work?

Anyway, whatever you think, Bill Gross – who sits at the upper end of the pantheon of great investors next to Buffett, Soros and Jim Rogers – wrote in an investment outlook he calls ‘man in the mirror’: “All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience…perhaps it was the epoch that made the man as opposed to the man that made the epoch.”

He said: “There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne.”

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