[sachingulaya]

Actual text: Success in investing doesn't correlate with IQ once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

Warren Buffett

[michaelpinto]

This is sort of what nassim taleb is talking about with his character "fat tony" who isn't an academic but a street smart investor

[mc-lovin]

It should be the other way around: below a certain IQ all you need is the efficient market hypothesis and you will be an adequate investor.

[ghshephard]

Well - there is also the Age/Risk equation in which you need to rebalance your portfolio out of equities, and more into conservative (diversified) instruments (money market funds, AAA bonds, Cash) as you get older, and/or have less tolerance for risk.

But I get your point, the single sentence

"Put as much of your income into VFINX as you can afford."

gets you 95% of the way there - doubtful that you will really increase your performance that much by studying books like these - http://www.amazon.com/Top-Investment-Books/lm/R3OSLG8NX7CO8W.

[gfodor]

Buffett's entire investment philosophy is rooted in the idea that the market is not always efficient.

[bcoates]

I don't think that's true. Buffett's investment philosophy involves active intervention in the companies he owns, not just blind stock picking.

[cynicalkane]

Actually, Berkshire Hathaway is known for being mostly hands-off. Primarily they just place important people in key positions when they need to. Their corporate HQ has a few dozen people.

[gfodor]

He acts on what he perceives as mispricings in the market. That these mispricings may be caused or magnified by his own actions in the companies he is involved with isn't really the point.

[mc-lovin]

You don't seem to understand what is meant by the term "efficient market".

The efficient market hypothesis does not preclude the possibility that share prices could be improved by a buyout or activist shareholder.

[gfodor]

Yes but most of what Buffett does is not activist shareholder action or buyouts, it's security/company analysis. Then once he finds an underpriced company (as was the most recent case by Heinz) he then takes an action to get the best price for the shares for Berkshire. The market won't digest the information of these private negotiations of course but up until that point Buffett's idea generation is largely driven by the public price of securities, at least according to what he tells us.

[adventured]

I assume you're joking, since the stock market is anything but efficient. If it were, as Buffett has noted frequently, his success would have been completely impossible. Indeed, the most money is made from the highest inefficiencies. And there's no inherent or guaranteed mechanism that drives under or over valued stocks back into any theoretical fair value line. Stocks are governed by human judgment ultimately - which typically swings emotionally to extremes - there's nothing efficient about that.

[mc-lovin]

I wasn't joking.

> If it were, as Buffett has noted frequently, his success would have been completely impossible. Indeed, the most money is made from the highest inefficiencies.

Survivorship bias? I don't know, but in any case market efficiency is a very general claim, it doesn't rule out some "special" people with innate talent to predict future prices.

>And there's no inherent or guaranteed mechanism that drives under or over valued stocks back into any theoretical fair value line. Stocks are governed by human judgment ultimately - which typically swings emotionally to extremes - there's nothing efficient about that.

Just empty rhetoric. Look into the literature of econometric tests of the efficient market hypothesis.

[lmkg]

> but in any case market efficiency is a very general claim, it doesn't rule out some "special" people with innate talent to predict future prices.

The "efficient market hypothesis" is one of those hypotheses that has Strong and Weak versions, with the weakest versions being obviously true, and the strongest versions being equally obviously false, and practically pseudo-religious. The strongest version of the Strong Efficient Market Hypothesis does indeed rule out the existence of such exceptional people (or at least their ability to profit), because it says that the market will always instantaneously reflect the knowledge of all participants. Such a prognosticator would find their ability to beat the market asymptotically approach zero, as his attempts to take advantage of opportunities cause those opportunities to evaporate in his hands at the instant of investing.

[gfodor]

The survivorship bias argument to explain people like Buffett is ridiculous. Before you continue to tell myself and others to read up on CAPM, the EMH, portfolio theory, and so on (which I have, extensively), I suggest you read up on Buffett and his approach to investing. He vocally rejected the EMH decades ago, and has continued to produce outsized returns. The proof of the pudding is in the eating and Buffett has managed to be right much more often than the academics and their insane asset and derivative pricing models.