The hammer/nail thing is totally relevant. Exponential functions are really easy to deal with mathematically, so the quants at LTCM assumed that risks tail off exponentially (which means quickly), but they don't. So now everyone in finance knows about "long tails" (or "fat tails", as Warren and Charlie said), and they don't mean animals or men's formal wear!
You never put all your eggs in one basket when the risk is existential no matter how favorable the odds appear, but at the same time putting a larger than normal bet on a position that's offering outsized favorable expected value is probably a good idea.
IMO- Mr. Munger and Mr Buffet roll their eyes when people talk about Sigma and Fat Tails because it's more about the (margin calls) human greed behaviors.
The techniques they criticize work within organizations that have completely mastered them, but that isn't us working from home without AI supercomputers.
Most people believe that just because it consists of numbers, the stock market is a mathematical game. But they don't have the common sense to assume that it is actually a psychological game.
Yeah it's always kind of blown my mind how often people speak of unknown things as normally distributed. If you ask them why they think it's normally distributed they just say well we don't know how it's distributed, and if you don't know how it's distributed, gaussian is a good guess. But then ask them how good a guess it is, and how wrong it could be, and what the distribution of that error is, and what the expected value of their loss is due to that error, obviously they have no clue and just sort of fall back on "I dunno, I just think it seems reasonable and a lot of people do it". Also known as the fool's position.
there is always a risk of car accident, but the risk is small enough you just have to do it. By warren Buffett logic, you should never get in a car because you don't want to end up in a car accident. For example, warrent buffett keeps saying believe in america. Does that mean america economy can't collaps? It's just that the chance is very small. By his logic, he shouldn't invest at all.
"Go back to go": a Freudian "monopoly" reference 🤣. On a serious note, being so Apple-heavy seems risky and driven by the incentive to move the needle with large purchases. It seems that the rest of the company can excel, but if Apple slumps, Berkshire will be flat at best. It has been the most profitable buy on a dollar basis. So wtf do I know?!
The hammer/nail thing is totally relevant. Exponential functions are really easy to deal with mathematically, so the quants at LTCM assumed that risks tail off exponentially (which means quickly), but they don't. So now everyone in finance knows about "long tails" (or "fat tails", as Warren and Charlie said), and they don't mean animals or men's formal wear!
The wisdom here is focusing on unknown unknowns and doing it in a way that people take seriously without causing cognitive strain.
I love Warren and Charlie!
This guys own the business. The math wizards don't own shit. It's all other peoples money!
Not in every case. You might want to read When Genius Failed… it’s a good read on LCTM
They make me think of the 2 old guys in hte muppet show
it’s them
Funny enough me too. But I don’t think it was meant to be them. Lol but maybe it was. I can’t find anything on that.
You never put all your eggs in one basket when the risk is existential no matter how favorable the odds appear, but at the same time putting a larger than normal bet on a position that's offering outsized favorable expected value is probably a good idea.
Remove the word probably at the end and you make good points.
If you risk what you have and need for what you don't have and don't need.... YOURE GONNA HAVE A BAD TIME
gonna have a BAAAYAD TYYYYYME!
They are definitely referring to LTCM?
IMO- Mr. Munger and Mr Buffet roll their eyes when people talk about Sigma and Fat Tails because it's more about the (margin calls) human greed behaviors.
Good men.
I am now curious what the other 5 pieces of artwork regarding financial history are... ?
The techniques they criticize work within organizations that have completely mastered them, but that isn't us working from home without AI supercomputers.
Most people believe that just because it consists of numbers, the stock market is a mathematical game. But they don't have the common sense to assume that it is actually a psychological game.
Yeah it's always kind of blown my mind how often people speak of unknown things as normally distributed. If you ask them why they think it's normally distributed they just say well we don't know how it's distributed, and if you don't know how it's distributed, gaussian is a good guess. But then ask them how good a guess it is, and how wrong it could be, and what the distribution of that error is, and what the expected value of their loss is due to that error, obviously they have no clue and just sort of fall back on "I dunno, I just think it seems reasonable and a lot of people do it". Also known as the fool's position.
In the meantime, they deal with a billions portfolio they own to a large extent and you do math and comment on RUclips…as I do!
Thanks
on what day was this video recorded?
2013 Annual meeting
@@legendaryinvestors thank you
I think it was on a Wednesday.
20 billion sounds good
Legends
there is always a risk of car accident, but the risk is small enough you just have to do it. By warren Buffett logic, you should never get in a car because you don't want to end up in a car accident.
For example, warrent buffett keeps saying believe in america. Does that mean america economy can't collaps? It's just that the chance is very small. By his logic, he shouldn't invest at all.
lol, he runs a car insurance company so I think he's got that one right
👍
"Go back to go": a Freudian "monopoly" reference 🤣.
On a serious note, being so Apple-heavy seems risky and driven by the incentive to move the needle with large purchases. It seems that the rest of the company can excel, but if Apple slumps, Berkshire will be flat at best. It has been the most profitable buy on a dollar basis. So wtf do I know?!
If 'n it ain't broke, don't fix it? Sounds like?
Repent~!🐢
i need $100000 cash right now please give me it
zimbabwe dollar ?