An uncertainty guru says investors can’t shake off doubt — and even Warren Buffett’s success can be down to luck

• Predictions are questionable no matter who makes them — even if it’s Elon Musk or John Paulson, one expert says.

• David Tuckett, an uncertainty researcher, told BI that ultimately removing doubt “drives over a cliff.”

• He said the success of elite investors like Warren Buffett can be largely due to luck, not skill.

Even the brightest minds in finance and technology don’t know for sure what the future holds, and even the most successful investors may have been lucky, says one expert.

John Paulson—one of the few money managers to predict and profit from the 2008 housing crash—recently proclaimed that he would dump his stocks for cash and gold if Kamala Harris is elected president in November, as he expects the markets to to decrease.

Elon Musk responded to X that “Buffett is already preparing for this outcome,” apparently suggesting that Warren Buffett will also unload the stock if Donald Trump secures a second term.

“Investors will be misled by Paulson, Musk, or anyone else if they evaluate what he says about the future without acknowledging the uncertainty or imagine the future in a split (excited) state,” David Tuckett, author of Minding the Markets ,” Business Insider said in an interview.

Tuckett, director of the Center for the Study of Uncertainty in Decision Making at University College London, pointed out the danger of having no doubt about what’s coming: “In the short term, it may work, but ultimately it leads to a rock – a split. state.”

Instead, investors should adopt an “integrated state” where they recognize that uncertainty exists and investigate it, he said. They should weigh the pros and cons of what might happen and turn their decisions into “controlled experiments.”

To be lucky

The academic adviser to a new HSBC report titled ‘Seizing Uncertainty’ also argued that long-term investment success is a product of luck, not skill.

“One of the things to realize is that no one repeatedly succeeds in investing more than can be expected by chance – although of course in each period some do better or worse than others, and once you’ve done well, you may be better placed informationally. Tuckett said.

This applies even to top investors like Warren Buffett, he told BI. He was nodding to the efficient markets hypothesis, which proposes that “markets are more or less efficient”, i.e. “money doesn’t sit on the street”.

Tuckett also noted that the advent of algorithmic trading means “even a successful strategy can be copied quickly and then stop working.”

The story continues

Buffett has challenged this assumption for years. He once told a dinner guest that if the markets hadn’t made mistakes, he wouldn’t have been able to get rich by finding bargains. Buffett accepted that markets are largely efficient, but argued that inefficiencies sometimes arise when human psychology undermines rationality.

“Not. I disagree,” Tuckett told BI. “Inefficiencies arise from radical uncertainty and managing it in a divided state. This is not the same as not being rational. If things are uncertain – we just don’t know.

“Never let anyone who claims to be rational manage your money,” he added.

Berkshire boom

Tuckett is definitely in the minority in thinking that Buffett’s track record is comparable to flipping a coin and getting heads several times in a row.

Berkshire Hathaway’s stock price has risen more than 4 million percent since Buffett took over in 1965. It’s up 19.8 percent annually from that year to 2022, crushing the S&P 500’s 9.9 percent growth rate over the same period. period, the documents show.

Buffett has recognized the role of luck in his career, and it is clear that his position and reputation give him access to superior information and deals on better terms than almost anyone else in the world. But few would deny that his investment acumen has been key to beating the market over a long career.

Read the original article on Business Insider