buffett may just be lucky?

[alwaysinvert]

Found the link to the video where he was discussing Buffett 2 years ago:

 

http://fora.tv/2008/02/04/Nassim_Nicholas_Taleb_A_Crazier_Future#chapter_20

[Dynamic]

We ought not to discount all that Taleb says because of this, though. I think he has some valuable lessons for society and not just in connection with finance.

 

In many areas the research that he and various colleagues are doing into the effectiveness of professional decision-making could be extremely beneficial. For example, in medicine some of the evidence they've looked at seems to show that excessive general check-ups or running of tests on symptom-free individuals can result in statistically worse outcomes because they tend to be overdiagnosed and given treatment with greater risks than anything they might have or appear to have wrong with them. Potentially, some statistically informed Bayesian decision making guidance could improve health outcomes and save expeniture at the same time. If it's in the doctor's financial interests to run the test, however...

[twacowfca]

One of the things that Taleb talks about in one of his books is blow ups.  People who make 100 million for 10 years straight and then blow up and lose it all in about 10 minutes.  Remember that Buffet almost blew up at least 2 times.  Soloman and Gen Re.  I seem to remember there was a possible blow up with one of the newspapers as well.  Still I agree that Taleb doesn't know much about Buffett, and is pretty full of himself.

 

 

Blowing up refers to all your tradeable assets going down the drain, almost always because of leverage for loans that are supported by uncertain assumptions about the future.  By this definition, he has never been close to "blowing up" even if a couple of major investments may have come close to going sour.  

 

Cheers!

[twacowfca]

We ought not to discount all that Taleb says because of this, though. I think he has some valuable lessons for society and not just in connection with finance.

 

In many areas the research that he and various colleagues are doing into the effectiveness of professional decision-making could be extremely beneficial. For example, in medicine some of the evidence they've looked at seems to show that excessive general check-ups or running of tests on symptom-free individuals can result in statistically worse outcomes because they tend to be overdiagnosed and given treatment with greater risks than anything they might have or appear to have wrong with them. Potentially, some statistically informed Bayesian decision making guidance could improve health outcomes and save expeniture at the same time. If it's in the doctor's financial interests to run the test, however...

 

 

This is a major interest .  Can you refer me to some of his publications on this topic.  Would be much obliged.

[scorpioncapital]

 

How could Taleb or anyone else believe that batting 0.900 is not luck.  It's beyond the realm of understanding for economists, no matter how smart they think they are.  Cheers!

 

It's a good point. If I flip a coin 10 times and it comes up heads 9 times, it could certainly be luck. But if I flip it 500 times and it comes up heads 490 times, I'd be inclined to think the coin was rigged somehow. On the other hand, each one of those 500 decisions also rested upon the managers of those businesses making say a few smart decisions as well, so you have a total of maybe 5000 decisions going right.

[bargainman]

Let me post the quote here.. since I think people are blowing this out of proportion.

 

"I don’t want to spend too much time on Buffett. George Soros has 2 million times more statistical evidence that his results are not chance than Buffett does. Soros is vastly more robust. I am not saying Buffett doesn’t have skill—I’m just saying we don’t have enough evidence to say Buffett isn’t doing it by chance."

 

So basically he doesn't have enough evidence one way or the other, since Buffet makes fewer bets.  If Taleb had the data and could look at all the bets that Buffett turned down, and compare them with the ones he did not turn down, he would probably have the statisticcal data he needs.  He could look at the 1 million deals, look at the 1000 that Buffet did go after, and do a proper analysis.  But since Soros's trading style is different it's easier and possible for him to statistically calculate the robustness.

[goldfinger]

I happen to have worked 15 years ago in France with people Taleb associates himself with. Jean-Philippe Bouchaud and Didier Sornette (who he describes in his book "Black Swan") are scientists educated in the most elitist "Ecole Normale Superieure" rue d'Ulm. They have been exposed to most advanced fields in mathematics and physics and gone through some of the most selective competitive exams and education systems. While brilliant in their fields, they are scientists who happen to be driven by theory first in the most traditional french thinking process. Their aim is to find fundamental laws to explain most phenomena. They specialized in earthquake modeling and prediction or the analysis of certain states of matter for a living and were trying to extend their models to the rest of the world, in this precise case: finance. Taleb introduces very interesting questions and remarks: he attacks preconceived ideas that certain well known intellectual processes bring complete explanations of the evolution of real life systems as many system changing phenomena escape or have escaped our perception or knowledge. Chaos, non-linear systems, evolutionist theories for example will definitely connect with his ideas on many points.

However, he stays at a very general/theoretical/philosophical level: he is in search of rules that explain or disprove it all. He is an intellectual speculator also.

Buffett and Munger proceed in a much more practical way. They stay within the boundaries of problems they can solve in a context that makes sense with reasonable accuracy. If an asteroid crashes on earth, Buffett system will fail but who cares then ? If capitalism disappears, Buffett system will fail but who cares then ? Etc... Whithin these boundaries, analyzing competitive advantages, the effects of human psychology or the persistence of certain models makes total sense and that is something that totally escapes Taleb's perception. I would not want Taleb to be CEO of the company I work for, or general of the armee I fight with because he would not find the competitive advantages and tactics that would make us successful as he would always doubt they could really work in all situations he would consider.

[scorpioncapital]

Evidence for success in business selection is not determined by the sum total of trades made. I'm not sure what "kind" of evidence he is talking about.

[rranjan]

"I’m just saying we don’t have enough evidence to say Buffett isn’t doing it by chance"

 

Some one else might have more statistics but a person accumulating 50 odd billions by taking series of decisions during past 30-40 years and then you state that it doesn't give evidence about his investment skills? How much more evidence anyone will need to be convinced that buffet is not simply lucky but has skills to reach where he is today? I can understand the luck argument with founder of a Tech/Oil company hitting big but with buffet......

 

Soro might have larger decision set but Taleb being not convinced with Buffet investment skills proves only one thing, the Economists should stick with economics. Another example of not staying within the circle and as result sounding clueless.

 

 

[value-is-what-you-get]

Taleb is one of those guys who Buffett suggests should give away 40 points of IQ before he starts talking or thinking about investments.

 

Has anyone on this board ever made a financial or investment decision based on something Taleb said that actually resonated or was practically relevant?

 

How about same question for WEB?

[twacowfca]

One of the disappointments of Schroeder's book is the lack of information about personal performance.  I believe this was intentional because critics would have jumped on the difference in performance.

 

I dont believe Schroeder left anything out because of critics would have gotten at Buffett.

 

 

 

 

Yes, but his personal portfolio performance has not been as visible as BRK's, and he may not have shared these details with Schroeder.  WEB may not have wanted the public to see how much better his personal account has done compared to BRK's in recent years, although this should not be interpreted as shortchanging shareholders because it's easier to outperform with a smaller portfolio. Nevertheless, the news media would have had a field day with this one.

 

There has been a hint of this outperformance in a couple of remarks Warren made.  Several years ago, he said that his personal portfolio was about 1% of his assets.  More recently, he was quoted as saying that his personal portfolio was about 3% of his assets.  :)

[Hershey]

I am a huge fan of Buffett and Munger, however there has been at least one narrow miss that would have ruined BRK - if 9/11 had been a nuclear event.

 

So while I find a lot of Taleb's writing to be over the top pompous, I do think it is possible that Buffett could have had his spectacular history destroyed on 9/11. 

 

And I do think Buffett and Munger would not disagree with Taleb's notion that major bust ups can happen - hence their aversion to debt and leverage. 

 

I do think Taleb ventures far outside his domain when he criticizes Buffett personally, like he did in one of his books where he knocked, from afar, Buffett's unique tastes and lifestyle for a wealthy man.

 

 

 

[Dynamic]

In many areas the research that he and various colleagues are doing into the effectiveness of professional decision-making could be extremely beneficial.

 

This is a major interest .  Can you refer me to some of his publications on this topic.  Would be much obliged.

 

I'm only starting to get into Taleb and colleagues' take on it myself, but this link is one I came across and appears to be a good starting point. I grabbed the Flash Video from that page partly to view it full size, and partly to remind me where I'd found it.

http://knowledge.insead.edu/Dancingwithchance090504.cfm

You can also look into their book via its own website.

http://dancewithchance.com/

[RichardGibbons]

Has anyone on this board ever made a financial or investment decision based on something Taleb said that actually resonated or was practically relevant?

 

Yes.  He gives an example of his boss asking each of the traders in his office what the most likely thing that the market would do in the next month, and Taleb said something like "Go up 1%". His boss was outraged, because Taleb had a large short position in index futures.  Why was he trading against his belief about what the market would do?

 

Taleb's answer was that he thought there was a 75% chance of the market going up 1%, but a 25% chance of the market falling 20%.  Of course, that means that though the market's likely to go up, going short is the winning strategy.

 

This sort of thinking has had a significant impact on how I invest in both stocks and options.  If you think it through, it also is related to Buffett preferring a bumpy 15% return to a smooth 10% return.

 

There are quite a few things in his books that have helped me think about the world differently.  Taleb says some goofy things sometimes, but I derived an immense amount of value from his books.  Just building those mental models....

 

Richard

 

[twacowfca]

I am a huge fan of Buffett and Munger, however there has been at least one narrow miss that would have ruined BRK - if 9/11 had been a nuclear event.

 

So while I find a lot of Taleb's writing to be over the top pompous, I do think it is possible that Buffett could have had his spectacular history destroyed on 9/11.  

 

And I do think Buffett and Munger would not disagree with Taleb's notion that major bust ups can happen - hence their aversion to debt and leverage.  

 

I do think Taleb ventures far outside his domain when he criticizes Buffett personally, like he did in one of his books where he knocked, from afar, Buffett's unique tastes and lifestyle for a wealthy man.

 

 

 

 

 

Buffett's insurance companies are much more protected from the extreme event than most other companies.  All of the industry policies have had a war exclusion almost forever.  That would have excluded most scenarios of a nuke explosion before 911. Nevertheless, reducing risk is merely probabilistic not absolute.

[twacowfca]

In many areas the research that he and various colleagues are doing into the effectiveness of professional decision-making could be extremely beneficial.

 

This is a major interest .  Can you refer me to some of his publications on this topic.  Would be much obliged.

 

I'm only starting to get into Taleb and colleagues' take on it myself, but this link is one I came across and appears to be a good starting point. I grabbed the Flash Video from that page partly to view it full size, and partly to remind me where I'd found it.

http://knowledge.insead.edu/Dancingwithchance090504.cfm

You can also look into their book via its own website.

http://dancewithchance.com/

 

 

Many thanks, Dynamic.  :)

[Dynamic]

I'm only starting to get into Taleb and colleagues' take on it myself, but this link is one I came across and appears to be a good starting point. I grabbed the Flash Video from that page partly to view it full size, and partly to remind me where I'd found it.

http://knowledge.insead.edu/Dancingwithchance090504.cfm

You can also look into their book via its own website.

http://dancewithchance.com/

 

Further links...

 

Most about medical aspects comes from Taleb's colleagues rather than his own work (though he has questioned some genome research statistics in the NEMJ).

 

If you visit this link, clicking through to his colleague Dan Goldstein reveals more on medical decision making.

http://www.decisionresearchlab.com/mission.html