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Beware of Geeks Bearing Formulas

 

Buffett’s partner, Charlie Munger, in the 2009 Shareholder’s meeting said, “Some of the worst business decisions I’ve ever seen are the consequence of complex calculations and projections. They do that in business schools because, well, they have to do something.” 
 

Buffett and Munger often argue that high intelligence can be a hindrance, especially when brainpower generates complicated mathematical models that purport to predict the future. The highly fashionable “Efficient Market Theory” (EMT) essentially said that analyzing stocks was useless because all public information was appropriately reflected in their prices.


In his 1988 Berkshire Shareholder’s Letter, Buffett stated: “Academics … observing correctly that the market was frequently efficient, went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day.
 

“Naturally the disservice done students and gullible investment professionals who have swallowed EMT has been an extraordinary service to us and other followers of Graham (Buffett’s college professor). In any sort of contest – financial, mental, or physical – it’s an enormous advantage to have opponents who have been taught that it’s useless to even try. From a selfish perspective, Grahamites should probably endow chairs to ensure the perpetual teaching of EMT.”
 

We learned many years ago that there is no substitute for hard work and common sense.  We continue to find that to be true. 

 

“I’d be a bum on the street with a tin cup if the markets were always efficient.” -- Warren Buffett

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. It is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Dave Crouch and not necessarily of Raymond James. Raymond James is not affiliated with and does not endorse the opinions or services of Warren Buffett or Charlie Munger. This is not a solicitation to buy or sell Berkshire Hathaway stock or any other security. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Past performance may not be indicative of future results.

 

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