The Usual Suspects: A Preview of Sunday’s Investing Presentation

I am going to give a brief talk this Sunday as part of the brand new Meetup Group, Monterey Intelligent Investors. The details are as follow:

Sunday, August 4, 2013
10:00 AM to Cafe Lumiere
365 Calle Principal, Monterey, CA

Grading the Gurus
I have often wondered if it makes any sense to pay attention to investing gurus. I’m talking about the greats; the legends; the Warren Buffets; The Benjamin Grahams; those with real followings, real track records, and, most importantly, real philosophies. In brief, I want to ask questions and query data in such a way that will help people place the “usual suspects” into one of three groups:

  1. True Legend – one who not only earned great wealth for himself, but has blazed a path that others are able to follow. True legends are both great practioners and great teachers.
  2. Eccletic Genius – one who was able to attain great wealth for him or her self, but has done so through using intelligence and/or intuition and/or instinct, all of which cannot be taught. Surely we can learn from these individuals, yet their methods of choosing cannot be reliably replicated.
  3. Lucky Bloke or Curve Fitter – I believe in the inevitably of certain indivduals achieving great results through sheer luck. Probability theory predicts these outliers and the nature of modern society promotes their likelihood. These individuals’ cult followings have more to due with their unlikely success than their skill. I also believe that curve-fitting, backward-looking biases, and self-delusion run rampant among retail traders and investors. There are scores of academics and “experts” who can claim that “if you woulda done it may way, you’d be beat the market”. Anyone can use the past to support his or her ideas, but the real test is how their methods stand up in a forward looking fashion. Let’s do that…

This Sunday at the Monterey Intelligent Investors Meetup in Downtown Monterey, I will investigate these issues by analyzing a forward-looking, publically available dataset from Validea.com. Specifically, I am trying to break the models by tweaking their parameters. If the performance falls apart or varies significantly for a small change in one of the variables, then that might suggest ‘fragility’. If the model’s performance doesn’t change much, then that might suggest ‘robustness’. The expected returns themselves are of secondary importance.

Again, I believe there are three ways to attain ‘guru’ status: skill, genius, or luck. I am looking for skill because skill can be taught and learned whereas genius and luck cannot. This is what I believe to be the wisdom of employing a method-centric approach to investing.

Teaser: The Usual Suspects
I will be evaluating 12 gurus over a period of approximately 10 years; 1993 to the present. For an introduction, I will present dossiers on each guru, which will be useful to those who are not totally familiar with the concepts of method investing.

Here is a sneak preview of two such dossiers:PiotroskiDossierBuffetDossier

My Sales Pitch
… is that I’m not selling anything. I only hope that my research will help guide people in making more intelligent decisions regarding their evaluations of futures investments and/or trading opportunities. With that, I hope to see you on Sunday. If you can’t make it but are still interested in the topic, just shoot me a message and we can talk shop off-line.