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Nassim Taleb: Soros versus Buffett

A great post by my friend David Lau of http://dahhuilaudavid.blogspot.com/ . I wanted to write something similar, but he did a spectacular job, so I am reposting here with permission.

Dear Mr. Nassim Taleb,

Soros versus Buffett

I came across an article on Bloomberg Businessweek, which said….

If given a choice between investing with Buffett and billionaire investor George Soros, Taleb also said he would probably pick the latter.

 

“I am not saying Buffett isn’t as good as Soros,” he said. “I am saying that the probability Soros’s returns come from randomness is much smaller because he did almost everything: he bought currencies, he sold currencies, he did arbitrages. He made a lot more decisions. Buffett followed a strategy to buy companies that had a certain earnings profile, and it worked for him. There is a lot more luck involved in this strategy.”

 

[From: http://www.businessweek.com/news/2010-09-25/obama-s-stimulus-plan-made-crisis-worse-taleb-says.html]

I have high respect for your intelligence and thinking, and I believe that “Fooled by Randomness” and “The Black Swan” are must-read books for everyone.  However, I believe your observation on Warren Buffett is wrong.

You justified your pick on Soros because you have observed his thousands if not millions of trades; therefore, giving you comfort that he is making decisions and his success, to quote what you said, is “2 million times more statistically evidence that his results are not by chance than Buffett does”.

You are implying that Soros is making thousands more decisions that Buffett.  It seems to me that your understanding of Buffett is superficial, leading to your flawed conclusion.

During a meeting with MBA students from the University of Georgia in early 2007, Buffett told the group of students that “There were four Moody’s manuals at the time. I went through them all, page by page, over 10,000 pages twice. On page 1433, I found Western Insurance Securities. Its earnings per share were as follows: 1949 – $21.66, 1950 – $29.09. In 1951, the low-high share price was $3 – $13. Ten pages later, on page 1443, I found National American Fire Insurance….”

Again, in 2004, Buffett searched through the entire Korean stock market by reading Citigroup Investment Guide to Korean Stocks (that is over 1,700 companies).  In 4 hours he found 20 companies that he liked and put $100 million to work.

These two examples illustrated that Buffett did make thousands of decisions of not to invest.  Those who study Buffett intensely know that he works extreme hard and study all companies available from A to Z, leaving no stone unturned.  Deciding not to buy is just as important as deciding to buy.  However, inactivity is commonly misunderstood for not making any decision.

To quote Albert Einstein, “Not everything that counts can be counted, and not everything that can be counted, counts.”

Kind regards,

David Lau

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  • denis o’brien

    since warren is usually long and george is usually short, I would give each 50% of my capital.

  • http://[email protected] Dave Zuckerman

    Okay there is a book that show on the winning habits of two master investors.
    One is George and The other warren.
    What becomes very apparent is one thing.
    Warren does it easily and without loseing much sleep. For the most part.
    George Soros was very much more complicated and was a nervous and was somethings up for days. Worrying.
    As he leveraged things heavily.
    Also George has an inverted company to escape tax liabilites.
    Warren makes it and is taxed here.
    Each whale feeds in different areas with great results.
    After reading the book , I realized each is a super investor.
    To pick George over Warren or vicea versa… is not right.
    They both do things successfully employing winning Habits that make them the master investors they are.
    THe best is to read and listen to each and decide which one of them best fits your personal style and which can be adopted more easily to help an individual make money.
    Following either precisely will yeild money.
    Better than thinking on your own.
    There is another important point.
    Warren just buys dollars for less based on intrinsic value.
    George is buying things based on reflexivity. Meaning where he thinks the investment is going in the minds of the investors or economy shift.
    Important point.
    George Soros is out of the game and has been for a while.
    As far as investing goes.
    Warren is in the game .. and as strong as ever. You decide who is better of the two.
    In my humble opinion. I have alot to learn from both.
    Yes I do favor warren.
    And I make money with his ideaolegy.
    George I listen to as well. But dont do what he does.
    I like to sleep. Alot.