mydoghatescats

Book Review: 'The Intelligent Portfolio' by Christopher Jones

Geoff, thanks again for your valuable work.

Thanks also for pointing out the Grossman-Stiglitz paradox. When I recently studied MPT this paradox stood out to me. The other folks in my class, when I brought it to their attention, didn't seem all that impressed by my brilliance.

But in my very own market behavior, though I attempt to be rational, I see ample evidence of the stupid human tricks that are always operative and forever taking nicks out of the efficiency of markets, resulting in mispricings. I don't consider myself a brilliant investor, but I have been actively engaged in the process for over thirty years, studying constantly and managing a portfolio that has grown significantly. I didn't participate fully in the go-go 90s because I never fully trusted what was happening. But that mistrust helped me avoid a lot of the subsequent downside. Once again during this new cycle, I failed to fully participate in the runup following the bubble crash, but once again I am experiencing the innoculation my conservative nature provides when markets tank. I boast here, but my decision making has steadily improved. But I still, far too frequently, make some real boneheaded, very irrational, and quite significant mistakes. And so I know for a fact that I myself make a sizable contribution each year to the ongoing inefficiencies of the market.

I picture Buffett and friends at one end of the market prowess spectrum, their each and every decision a mighty contribution to the edifice of market efficiency. I picture all the rest of us as a million ducks, some ducks bigger idiots than others, pecking this efficiency to death, or at least breaking off chunks, which fall to the earth as mispriced securites.

But even Buffett would admit that he can be boneheaded and introduce a mispricing. Whenever I start believing too strongly in the efficiency of markets (or the infallibility of Warren) I remind myself that one day WEB woke up, drove to work and bought Pier One Imports. Bought it from a duck.