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Claude Shannon as a long term investor


bennycx
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Anyone who has read Fortune's Formula will realise that Claude Shannon is a buy and hold investor. His Princeton-Newport partnership earned 28% compounded returns from late 1950s to 1986, mainly holding Teledyne, Motorola and HP.

 

As a comparison, Buffett's early partnership returned 29.5% from 1957 to 1969.

 

This begs the question whether using a net-net Grahamite approach is better even with small sums of money.. Perhaps "great companies at a fair/cheap price" is also ok.. Shannon was able to achieve such returns as a long term investor and he isn't really limited to size of the fund..

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Fair/cheap prices for good businesses may have occurred regularly in the 1950s.  However, that's not really the case today.  For this reason, I doubt you could replicate Claude Shannon's returns today using his Philip Fisher-like approach.  That is, unless you were *really* patient and *really* good at picking your spots.

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...Claude Shannon is a buy and hold investor. His Princeton-Newport partnership earned 28% compounded returns from late 1950s to 1986, mainly holding Teledyne, Motorola and HP.

 

I think you are mixing up Ed Thorp and Claude Shannon. 

 

Ed Thorp was princeton-newports architect, and was not a buy and hold investor (His success was achieved with lots of convert arbitrage and other long / short strategies... and he is generally credited for unlocking the value of the B-S option pricing formula and exploiting it before it was ever published). 

 

Shannon was a more long term hold investor who did well, but I do not believe he was directly involved in anything related to Princeton Newport although he was an associate of Thorp and may have been an investor in the LP.

 

Feel free to correct...

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...Claude Shannon is a buy and hold investor. His Princeton-Newport partnership earned 28% compounded returns from late 1950s to 1986, mainly holding Teledyne, Motorola and HP.

 

I think you are mixing up Ed Thorp and Claude Shannon. 

 

Ed Thorp was princeton-newports architect, and was not a buy and hold investor (His success was achieved with lots of convert arbitrage and other long / short strategies... and he is generally credited for unlocking the value of the B-S option pricing formula and exploiting it before it was ever published). 

 

Shannon was a more long term hold investor who did well, but I do not believe he was directly involved in anything related to Princeton Newport although he was an associate of Thorp and may have been an investor in the LP.

 

Feel free to correct...

 

Yup. He and Thorp worked together at MIT as Thorp worked out the changing probabilities for blackjack. Shannon recognized the importance of the Kelly Formula for asset allocation, and he and Thorp developed a device, using the first miniaturized computer complete with audio output for quick decision making, to time the drop of the ball in roulette after experimenting with a real roulette wheel for many months.  They developed skill predicting where the ball was likely to fall into certain zones on the wheel and determined that they should be able to make money with it in casino play.

 

They took a vacation trip with their wives and demonstrated its success in casino play with much difficulty as wires broke and they felt paranoid about what they were doing.  Their wives made strong objection to continuing to play in the unfriendly and potentially lethal confines of a casino, so they enjoyed the rest of their vacation and returned to academe where they shifted attention to the physically safer casino, called the stock and bond market.

 

Shannon demonstrated a simple but amazing algorithm for  rebalancing an imaginary index, practically after very large moves up or down, that would reliably make money in a volatile market that was ultimately flat. Singleton used a similar rebalancing system to awesome effect by repurchasing Teledyne shares when they were very depressed, but not necessarily net, nets as Graham had advocated, and selling shares when they were high.  :)

 

Shannon  made most of his money as a buy and hold investor, especially in Teledyne while relying on Singleton to rebalance internally.  Shannon, like Singleton and Fisher, had a nose for spotting small tech stocks with promise and holding them for a long time.  He may have wound up owning them for a lifetime because he became senile in his later years.

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  • 6 years later...

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