First, let me point out that I put a fair amount of work into pointing out all those flaws and holes in your last best citation, and I’m a little annoyed that you completely ignored all of them in favor of saying “but Buffett is so high-status and I like him so much”.
If you want I’ll go through them point by point.
I don’t see any mention of how they were audited (Buffett merely says that they ‘were audited’, no mention of by whom, when, what the audits said, whether he saw the results, etc, and offers as reassurance that checks were paid for the appropriate amounts, which is not my problem here)
Presumably you can see the difference between your stating these are NOT audited, and then when pointed out that they are, you back off to this.
The results of the audit are the results in this article. That is, these are results reported which survived the audits.
In many of the cases, the audits are “typical” of the investment advisory business, but I do not know what that means exactly. But it is a level playing field against all other investment advisers.
Also for a few, not all, of the investors cited here, they run/ran for decades public investment businesses. Isn’t the preponderance of your Bayesian a posts that if at least these members of this widely read, cited, and discussed “superinvestors” article was just wrong, that this would at least have lead to traceable reports of the discrepancies on the internet, finable with google search?
To the extent your objections amount to “Buffett could be an idiot and a fraud, either not knowing or not caring what it means to make these claims” my answers are going to be we have 5 decades of impeccable record, if you think Buffett is that unreliable then generally there is no arguing with you as anybody who says something with which you disagree you will question as an idiot or a fraud. If you cannot tell that Buffett is not an idiot or a fraud, or have not followed him well enough to be sure one way or the other, then I would suggest you have no business weighing in on the subtle subject of whether the market is so inefficient that the best investors in the world are just coin-flippers.
What you think about Buffett’s “character” is irrelevant to me, and for me, further emphasizes your extremely poor reasoning in this area—that when pushed back, you resort to one man and your beliefs about his “character”.
I suggest relying upon Buffett because you and everyone else out there who can read has infinitely more reason to rely upon Buffett than to rely upon me. And further, what is needed int he discussion of EMH vs non-EMH is not some brilliant new insight that I can provide that you haven’t seen somewhere else already. EMH vs non-EMH is a subtle question, is the market so efficient that Buffett can’t consistently beat it without committing a crime, either insider trading or some other information-twisting fraud, or is it just a little less efficient than that? The “insight” I have is that what pushes it towards efficiency is competing analyses on opposite sides of each trade. The “insight” I have is that every bit of evidence suggests that in business some people have superior skill or algorithms or SOMETHING and are more successful than others. And they can do it serially, command high prices in very competitive markets, blah blah blah, and show EVERY BIT as much evidence of being “real” as are great pitchers or tennis players or tenors or talk show hosts or porn stars. And your case is that no, with investing it is different, the people who do the work are so smart that they get it right in an unbeatable way, but so stupid that they don’t even realize they would be better off free riding.
What is needed is not any great insight from one or the other of us, I don’t think, but evidence that is hard to deny that yes, the market can be beat. I think that evidence would consist of market beaters coming from a narrowly defined group of people who set out to beat the market by studying it and allowing evidence to drive their future hypotheses and efforts. And what do we find in the market? Exactly that, market beaters are smart and talk in terms of causality, of what makes a business great, of where the momentum traders and the chartists missed the boat.
But my causal chain of how the market could be merely VERY efficient has been, I hope, presented by now. Let me know if it hasn’t.
Markets are very different from electronic circuits or particle physics or philosophy or engineering. Circuits don’t care if you found a more efficient way to design them. The properties of steel will not change when you discover it lets you build profitable bridges.
As much as you might hypothesize that we will not see securities markets make the same mistakes they have made in the past, does the evidence support that? And in any case, the idea that markets do learn or have learned SOMETHING supports only the VEMH, the very efficient market hypothesis, which is not controversial. By this I mean the hypothesis that it is hard to beat the market, because all the easy stuff has been figured out and is properly accounted for by the bulk of the traded money in the market.
I tracked Chiplotle stock on and off from around 2000 forward. There were two classes of shares, A, and B, with the B’s trading at a very consistent 10% discount to the A’s. I would check once or twice a year to see if this difference persisted, and it did. The thing that was surprising was that the documentation of the company explained that these shares had equal value, represented identical fractions of the total company. Why they traded at a 10% difference I never saw an explanation, and I always questioned whether there was some detail I was missing. Here, in late 2007 is documentary evidence that the difference persisted. Here, two years later, is Chipotle’s report that they were eliminating the two classes in favor of one class, and that the exchange rate would be 1:1 just as I had always believed.
In my case, I am an electrical engineer/physicist, trying to concentrate on building new cell phone algorithms for at least a few hours a day. Instead of organizing the financing to exploit this weird inefficiency at low cost, I just checked in on it every year or two. Wanting to see if I was right. Had I been a professional trader, I would have looked more at creating an arbitrage on the A and B shares and capturing the collapse of the arbitrary pricing difference. As an amateur I didn’t know if it would ever collapse, and the brokers are neither smart enough nor dumb enough to let me buy the As and short the Bs without a lot of capital in my account to anchor what they see as two uncorrelated risky bets.
My point here is this is just ONE of MANY possible stories of moderate sized inefficiencies I have seen with my own eyes. Others I have traded. Yes, every one of them is an anecdote. The plural of anecdote is not data. But a bunch of anecdotes like that creates, it would seem, market beating performance for many traders trading different stocks.
Maybe markets COULD be different than circuits and so on, and maybe as computers and AI takes over more and more, they will get more and more efficient. But even then, the most powerful AIs will be beating the market, even as they essentially set th prices at levels that make it incredibly hard for anybody else to beat the market. The thing that drives market makers is not their stupidity, but their intelligence and rationality. Seems to me.
Er, yes, there is. That’s kind of the point of the efficient markets concept! Markets are unusual and special in that the attempt to find predictable regularities leads to the exploitation of the regularities and their disappearance.
THIS is a hypothesis. And the only word in that hypothesis I will argue with is the last one: disappearance. The predictable regularities don’t disappear from the time-stream of prices, if there is a mispricing at 2:31 PM on Thursday it is frozen there in the permanent record. What changes is how long it takes for the record to close those various gaps. Maybe before computers a broad class of inefficient prices were never traded away. Maybe in the 1980s a broad class of inefficiencies were capitalized upon by people with computers over the course of a two week period. Maybe by the 2000s those same inefficiencies were traded away within hours or minutes.
But my points are: 1) we are not arguing efficiency vs inefficiency, we are arguing too efficient to beat vs nearly too efficient to beat and 2) without the inefficiencies, no one would be there to pay the actors making the market more efficient by trading the inefficiencies, and that no, it is not their stupidity that keeps them working for free.
I hope this is what you wanted when you suggested I was ignoring your point and merely arguing pro hominem, citing people who I thought should be much more believable than I am. If I missed anything that still seems critical, flag it to me and I’ll answer it.
If you want I’ll go through them point by point.
Presumably you can see the difference between your stating these are NOT audited, and then when pointed out that they are, you back off to this.
The results of the audit are the results in this article. That is, these are results reported which survived the audits.
In many of the cases, the audits are “typical” of the investment advisory business, but I do not know what that means exactly. But it is a level playing field against all other investment advisers.
Also for a few, not all, of the investors cited here, they run/ran for decades public investment businesses. Isn’t the preponderance of your Bayesian a posts that if at least these members of this widely read, cited, and discussed “superinvestors” article was just wrong, that this would at least have lead to traceable reports of the discrepancies on the internet, finable with google search?
To the extent your objections amount to “Buffett could be an idiot and a fraud, either not knowing or not caring what it means to make these claims” my answers are going to be we have 5 decades of impeccable record, if you think Buffett is that unreliable then generally there is no arguing with you as anybody who says something with which you disagree you will question as an idiot or a fraud. If you cannot tell that Buffett is not an idiot or a fraud, or have not followed him well enough to be sure one way or the other, then I would suggest you have no business weighing in on the subtle subject of whether the market is so inefficient that the best investors in the world are just coin-flippers.
I suggest relying upon Buffett because you and everyone else out there who can read has infinitely more reason to rely upon Buffett than to rely upon me. And further, what is needed int he discussion of EMH vs non-EMH is not some brilliant new insight that I can provide that you haven’t seen somewhere else already. EMH vs non-EMH is a subtle question, is the market so efficient that Buffett can’t consistently beat it without committing a crime, either insider trading or some other information-twisting fraud, or is it just a little less efficient than that? The “insight” I have is that what pushes it towards efficiency is competing analyses on opposite sides of each trade. The “insight” I have is that every bit of evidence suggests that in business some people have superior skill or algorithms or SOMETHING and are more successful than others. And they can do it serially, command high prices in very competitive markets, blah blah blah, and show EVERY BIT as much evidence of being “real” as are great pitchers or tennis players or tenors or talk show hosts or porn stars. And your case is that no, with investing it is different, the people who do the work are so smart that they get it right in an unbeatable way, but so stupid that they don’t even realize they would be better off free riding.
What is needed is not any great insight from one or the other of us, I don’t think, but evidence that is hard to deny that yes, the market can be beat. I think that evidence would consist of market beaters coming from a narrowly defined group of people who set out to beat the market by studying it and allowing evidence to drive their future hypotheses and efforts. And what do we find in the market? Exactly that, market beaters are smart and talk in terms of causality, of what makes a business great, of where the momentum traders and the chartists missed the boat.
But my causal chain of how the market could be merely VERY efficient has been, I hope, presented by now. Let me know if it hasn’t.
As much as you might hypothesize that we will not see securities markets make the same mistakes they have made in the past, does the evidence support that? And in any case, the idea that markets do learn or have learned SOMETHING supports only the VEMH, the very efficient market hypothesis, which is not controversial. By this I mean the hypothesis that it is hard to beat the market, because all the easy stuff has been figured out and is properly accounted for by the bulk of the traded money in the market.
I tracked Chiplotle stock on and off from around 2000 forward. There were two classes of shares, A, and B, with the B’s trading at a very consistent 10% discount to the A’s. I would check once or twice a year to see if this difference persisted, and it did. The thing that was surprising was that the documentation of the company explained that these shares had equal value, represented identical fractions of the total company. Why they traded at a 10% difference I never saw an explanation, and I always questioned whether there was some detail I was missing. Here, in late 2007 is documentary evidence that the difference persisted. Here, two years later, is Chipotle’s report that they were eliminating the two classes in favor of one class, and that the exchange rate would be 1:1 just as I had always believed.
In my case, I am an electrical engineer/physicist, trying to concentrate on building new cell phone algorithms for at least a few hours a day. Instead of organizing the financing to exploit this weird inefficiency at low cost, I just checked in on it every year or two. Wanting to see if I was right. Had I been a professional trader, I would have looked more at creating an arbitrage on the A and B shares and capturing the collapse of the arbitrary pricing difference. As an amateur I didn’t know if it would ever collapse, and the brokers are neither smart enough nor dumb enough to let me buy the As and short the Bs without a lot of capital in my account to anchor what they see as two uncorrelated risky bets.
My point here is this is just ONE of MANY possible stories of moderate sized inefficiencies I have seen with my own eyes. Others I have traded. Yes, every one of them is an anecdote. The plural of anecdote is not data. But a bunch of anecdotes like that creates, it would seem, market beating performance for many traders trading different stocks.
Maybe markets COULD be different than circuits and so on, and maybe as computers and AI takes over more and more, they will get more and more efficient. But even then, the most powerful AIs will be beating the market, even as they essentially set th prices at levels that make it incredibly hard for anybody else to beat the market. The thing that drives market makers is not their stupidity, but their intelligence and rationality. Seems to me.
THIS is a hypothesis. And the only word in that hypothesis I will argue with is the last one: disappearance. The predictable regularities don’t disappear from the time-stream of prices, if there is a mispricing at 2:31 PM on Thursday it is frozen there in the permanent record. What changes is how long it takes for the record to close those various gaps. Maybe before computers a broad class of inefficient prices were never traded away. Maybe in the 1980s a broad class of inefficiencies were capitalized upon by people with computers over the course of a two week period. Maybe by the 2000s those same inefficiencies were traded away within hours or minutes.
But my points are: 1) we are not arguing efficiency vs inefficiency, we are arguing too efficient to beat vs nearly too efficient to beat and 2) without the inefficiencies, no one would be there to pay the actors making the market more efficient by trading the inefficiencies, and that no, it is not their stupidity that keeps them working for free.
I hope this is what you wanted when you suggested I was ignoring your point and merely arguing pro hominem, citing people who I thought should be much more believable than I am. If I missed anything that still seems critical, flag it to me and I’ll answer it.