re: Michael Price
He wanted to preserve capital and ended up buying treasuries, if I remember correctly. Who's to say he was wrong for not getting a better return on his money?
not sure what he did when he sold Heine, but he sure seems to own stocks now. stockpickr.com
obviously most rational billionaires would be concerned about preservation of capital to some extent. but on the other hand, what made them billionaires in the first place was not usually an ultraconservative approach to investing, so they may find it hard to change their behavior. it should be noted that many studies show that even ultraconservative investors can improve PF efficiency by having at least a small amount of equities. e.g., a 7/93 equity/bond split actually has a lower SD and better returns historically than a 100% bonds PF.
Bottom line ... is the success we enjoy in the market, over the long run, attributed to luck or skill?
i think there are very good reasons to consider it luck, which i have enumerated. but there are many people who believe it is skill. if you can convince them you have skill, they will pay you a lot of money and you won't have to talk to the public.
Brian Hunter made his employer a billion dollars in one year. surely a sign of skill, no? he got a 75-100 million bonus at the age of 31 or so, in 2005. he was the star trader for his firm, Amaranth, now famous as the largest hedge fund disaster in US history.
did Hunter have skill or luck? this was an important question to be asking in early 2006, before the disaster. after the disaster, many still believe he was skillful, but was unlucky in this instance. they said the same thing after LTCM. my mind reels when i hear these things...
everybody has to admit there is some luck: if it were nothing but skill, then you would win on every trade, and you would beat the market every day. so if there is any variance on your returns that is not due to your own actions, then that variance is best described as noise (randomness, luck). what people who claim skill are really saying is that there is some luck and some skill, but skill is the overriding factor. personally i think the markets are too noisy to make skill provable: even if you are skillful, it is difficult to prove statistically because random chance could have given the same or better results to an unskillful trader. whereas random chance does not make a Ted Williams.
my position is to take the Occam's Razor approach and say if you can't prove skill exists, then one should assume it doesn't exist. but if i want to be very precise, what i would say is: "i'm not saying investor skill doesn't exist, but that it can't be proved. therefore, i assume it doesn't exist, but i will admit it could exist but is simply not provable."
NB. simply having market-beating results is not proof of skill. i have market-beating results and no skill. big deal. there is a monkey that is as skillful as Cramer over at cramerwatch.org (yes, i know Cramer is... Cramer, but obviously a lot of people consider him to be skillful in some sense.)
so, one may have good results, but the monkey may also have good results. how do you prove your results were due to skill whereas the monkey's were obviously due to chance? that is the burden of proof which is hard (maybe impossible) to satisfy.
if civilization and the markets last another 1000 years, i am sure they will still be having this debate then. people will believe what they want. i just say my piece because it is what i believe, not because i think it will change anybody's mind. |
