Is Buffett just plain lucky?

February 9, 2010 at 12:04 pm Leave a comment

Nassim Taleb thought that Buffett emergence as a super-investor could be a black swan event, more due to luck than skill.

If you recall, Buffett has spoken on this issue in his speech on the super-investors from Graham-Dodds villes, in which he stated the investing records of several investors including him and concluded that their success must be due to investing skill taught by the value investing school of Graham-dodds.

I was also convinced of his explanation until i read of Buffett’s comments on an inevitable nuclear attack and Nassim Taleb’s book on black swan.

Here’s Buffett comment:”A nuclear bomb, he says, “is the ultimate depressing thing. It will happen. It’s inevitable. I don’t see any way that it won’t happen. But we can reduce the probabilities. If there’s a 10% probability of something happening in a given year–and I don’t know if that’s the right probability; nobody knows–then the chances that it will happen in 50 years are 99.5%. If you get it down to 3%, there is about a 78% chance. If you get it down to 1% per year, there’s like a 40% chance, so reducing the probabilities per annum of anything happening obviously increases the chance significantly that your kids will get through their lifetimes without this happening. You can’t get rid of the knowledge. You can try to control the materials. You’ll never get rid of the intent. It is the ultimate problem of mankind.”

If you replace the “nuclear attack’ with “someone like Buffett becoming a super investor”, then you will see that probability theory dictates that it is indeed possible that Buffett is plain lucky to draw the lottery ticket as he stated many times.

But, that still won’t take the shine off Buffett’s achievements, afterall “luck only favours the prepared mind”


Entry filed under: Investing.

Jeremy Grantham dig at Financial wizards Anyone care for a china milkshake?

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