Buffett v. Soros

From Taleb:

Asked…if returns such as those posted by Berkshire Hathaway Inc. Chief Executive Officer Warren Buffett — who amassed the world’s third-biggest personal fortune through decades of stock picks and takeovers — are the product of luck or talent, Taleb said both played a part. 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.”

Much wisdom there.

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6 thoughts on “Buffett v. Soros

  1. Taleb deserves much respect, for his own body of work, teaching/writing as well as trading, I’d say.
    Today, do not both Buffett and Soros have both clout and motive to make certain moves, perhaps politically as well as with their large positions, to set up markets favorably for themselves?
    Even if such influences are only short-term, does this say anything about their current, as opposed to past, skills?

  2. Several established trend following veterans have made the same point to me over the years. There are far less data points for Buffett compared to a trend following 20 year track record.

  3. Imagine Buffet had not been born in the US but in Japan. Where would “Buffetoki” be today? He would have been buying all those amazing value companies in the 90s and he’d still be down 65%.

  4. Yes, Buffet even admits that he lucked out being born in the United States. He makes the joke that imagine if he was born in some third world country at the time. The only thing he’d been able to allocate would have been bananas at best.

    I still like the idea of fundamentals first to start then laying over the technicals ( ie: IBD/William Oneil)

  5. They both are good at what they do. Buffet can generate alpha because of the amount of cash he brings to the table, a la the Goldman Sachs deal. Not really random, he took advantage of the crisis in the investment banking sector. Soros, having political connections, and ability to see the big picture led to his huge macro gains. At the end of the day, trend following in the equity markets makes its money off the overriding “P/E – earnings growth” meme. If a stock’s earnings don’t grow at a rate acceptable to most analysts, they won’t assign a higher valuation to the company, which leads to the stock appreciating. Trend Following is great because it filters out noise, and saves time, but the underlying fundamentals, or “noise” create the opportunity to follow a trend. You can skin a cat many ways.

  6. @Derrick,

    Trend following in the equity markets also makes its money off the overriding P/E Earnings “deflation” meme. E’s, P’s, and P/E’s do not always grow. The basic idea is to buy equities at low P/E’s and sell at high P/E’s, especially when conditions for increased earnings are also growing. The corrolary is to do the inverse; i.e., short equities at high P/E’s. The problem for both approaches is that low P/E’s can go lower and high P/E’s can go higher.

    Buffett has an advantage that nobody else discovered until years after he had perfected it: Owning the cash flow stream of insurance premiums that he can reinvest.

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