Bald Men with Large Brains

If you are serious about this business of trading, or investing, you must watch this. If you're really serious you should watch it twice.

(you have to click on the watch full progarm icon)
My formal education is very limited; however my experience and "informal" education is quite vast. I find that combination interesting when ever I dip back into the "formal" school for anything. I remember when I was working in the bank I thought I should continue along the Canadian Securities Institute’s offerings and decided on a course called Modern Portfolio Theory. Now remember no business school for me, however I had started and sold my own business, spent 20 plus years reading my Father's business magazine, and read hundreds of books on business and investing.

So it was with much excitement that I opened my shiny my new book and course work on "Modern Portfolio Theory". The first thing I noticed were math equations that covered an entire page. This does not sit well with me so I skip over those and try and find some words. Finally I do find some words that state those massive equations are going to tell me what my expected return will be based on the asset allocation I use.

My formally uneducated response to that was, huh?

That's impossible.

You can look back and see that stocks outperformed bonds and bonds outperformed cash over the past 100 years. But you have no idea how those returns will roll in, or out, each year.

I'm a mathematical neanderthal and I could see that.

However the people that wrote the book seem quite learned, formally learned, so I carried on desperately looking for more words and less math. Finally I see a small paragraph quoting Warren Buffett, aha I say Warren will explain this to me in words I can understand.

To paraphrase, Warren's little paragraph stated that markets are not efficient and "Modern Portfolio Theory" is a load of crap.

Apparently the learned authors of the book were offering a one paragraph rebuttal of their "theory".

Bye bye book.

Perhaps you can be too formally educated.

1 comment:

ANON said...


I've taken economics in the formal setting and just find myself struggling not to argue with the professor (as arguing with them does no good and is incredibly tiring...).

The "educated" world (often separated from hard reality) is a little behind on the times, at least in some matters.

I would listen to Bill Gates or Warren Buffett over most any econ professor.

Those who can, do. Those who cannot (and need a job anyway), teach.

Overly simple...but still--has its truth to it.