

Warren Buffet's Kid Show [video]  - cgherb911
http://online.wsj.com/video/clip-warren-buffett-secret-millionaire-club/31F28D12-5EA4-4515-9CB2-62F9C0CF64CE.html

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breck
I'll admit it: I will watch this cartoon.

Warren Buffett is, next to Taleb and a few others, my favorite modern thinker,
and the clip seems to do him justice. It's ironic how his ideas are so simple
they can be accurately presented in cartoon form. It's like reading the
Intelligent Investor: business/investing isn't too complex, the hard part is
executing on simple premises while keeping your emotions in check for the long
term.

~~~
mediaman
Taleb is not a good modern thinker. He takes existing, well-known mathematical
principles, rewrites them without citation or reference for the layman, and
then disparages the people whose work he took and other financial
professionals who also understand the mathematics quite well, as if he knows
something they don't.

He would be a lot less irritating if he (1) didn't claim credit for ideas that
aren't his and (2) stopped falsely disparaging people.

Buffett, on the other hand, is quite a bit more humble and grounded and
provides stable, sage advice. He also credits people a lot more for the work
they've done.

~~~
bhewes
First what well-known mathematical principles are you talking about? Second
have you read any of his academic papers? All can be found on SSRN. Two of the
big ones are "Errors, Robustness, and the Fourth Quadrant" and "Finiteness of
Variance is Irrelevant in the Practice of Quantitative Finance."

Taleb states "My central idea in The Black Swan is that: rare events cannot be
estimated from empirical observation since they are rare. We need an a priori
model representation for that; the rarer the event, the more the dependence on
aprorism. Further, we do not care about probability (if an event happens or
does not happen); we worry about consequences (how much total wealth or total
destruction will come from it). Given that the less frequent the event, the
more severe the consequence (just consider that the 100 year flood is more
severe, and less frequent, than the 10 year flood), our estimation of the
CONTRIBUTION of the rare event is going to be massively faulty (contribution
is probability times effect; multiply that by estimation error) ; and nothing
can remedy it. So the rarer the event, the less we know about its role --and
the more we need to make it up with an extrapolative, generalizing theory.
Hence model error is more consequential in the tails and some representations
ARE MORE FRAGILE than others..... Nobody before has examined my problem in the
history of thought, let alone systematize the idea of decision-making under
certain classes of ignorance."

I am sure he would be excited if someone could show him that his idea is not
original.

~~~
mediaman
The excerpt you provide from his paper is mathematically expressed as a
leptokurtotic probability curve and data with high heteroskedasticity.

Do you think he's the first guy to figure out that insufficient sample data in
the tails of a leptokurtotic probability curve leads to a higher overall error
term? Rather than some groundbreaking new theory of math, this is material
covered in freshman econometrics. I'm just asking that he admit this when he
boils it down to an enjoyable read.

EDIT: the concept of kurtosis was apparently at least named in 1905, over a
century ago, by German mathematician Karl Pearson.

~~~
danm
Actually, I believe his point is that the probability distribution is from the
Cauchy Distribution, where the mean, the variance, and the kurtosis are all
undefined. In fact, you're providing an example of exactly what he writes
about in believing that the tools being taught in "freshman econometrics"
apply to the sort of randomness you encounter in the real world. Certainly
Mandelbrot has had some things to say about this topic as well.

When basic financial tools and theories are based on assumptions that are Just
Plain Wrong, it makes you question the gigantic stack that has been built on
top of them.

It's easy enough to dismiss this stuff as worrying about edge cases, but these
edge cases occur more often than the theory dictates, and unfortunately,
people underestimate their impact.

~~~
mediaman
You're right about him preferring a Cauchy distribution vs. a leptokurtotic
distribution, I was mistaken.

Taleb argues that these tools aren't being used in the real world, but all the
evidence in places like the options market seems to indicate otherwise:
options get way more expensive (from a lognormal perspective) the deeper
in/out of the money they are, primarily because there are fat tails already
being modeled into the price. And given that options market data, it's tough
to see how going long on Black Swans will fetch a good Sharpe ratio--which
wouldn't be the case if it were true that everyone were slaves to normal
distributions.

~~~
bhewes
Yeah what you described is called the volatility smile.

I would say going long on Black Swans is more of an insurance policy unless
you are a VC. As the Taleb advised Universa Investments L.P. sells itself as
"an investment management firm that specializes in hedging tail risks for its
clients. Universa has a focused investment approach employing positively-
skewed payoffs, empirical and fundamental-based option valuation, and order
flow trading."

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vaksel
am I the only one who thinks this is pretty stupid? Kids won't watch something
like that(horrible acting/irrelevant topic), and adults gain nothing from the
cartoon format.

As long as they are getting Buffet, why not create a more concrete series. I
dunno, how about each episode he'd take a company to examine for investment,
and talk about all the pros and cons that he sees, while teaching the rest of
us about what to look for in our own investments

~~~
jakarta
Did you actually watch the video? He showed a pretty decent way to analyze a
candy business. Omaha Candy may be a fictional company, but it's easy to see
he's discussing See's Candies (which Berkshire owns).

In the video he even mentions that the candy business is good because the
maintenance capex is relatively low (he didnt phrase it like that, but that's
what it is) and that profits really only need to be plunged into advertising
(basically an example of a high ROIC business since its not very capital
intensive).

He's mentioned all of this before in the Berkshire Hathaway shareholder
letters -- this is kind of the same thing but in cartoon form. So as a
teaching tool, it's pretty good. If you really want more, dig up his
partnership letters.

~~~
vaksel
yes I watched the video, do you honestly see kids sitting down and watching
that? And if the show will be watched almost exclusively by adults, why use
the cartoon format?

~~~
sketerpot
Maybe they'll watch it if a teacher forces them to. Sometimes teachers just
want to relax and let a video take over for a while. (Their students will
still probably find the cartoon format patronizing, but then again people used
to watch Captain Planet, voluntarily.)

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RiderOfGiraffes
Warning: Auto-starting video.

From <http://ycombinator.com/newsguidelines.html>

    
    
      > If you submit a link to a video or pdf,
      > please warn us by appending [video] or
      > [pdf] to the title.

~~~
cgherb911
thanks for the info!

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davidw
There's a bit about "buying at a fair price", which brings to mind the bit
about the devil being in the details...

~~~
byrneseyeview
It's more of a meditation than a specific instruction. This works for other
kinds of advice: "Do the right thing?" doesn't help much, but saying "Am I
doing the right thing?" at the right moment can save you a lot of grief.

~~~
bumbledraven
Actually, it is pretty specific. In essence, Buffett says you should first
figure out what it would be worth to own the entire company (the "intrinsic
value"; calculating this is something of a black art) then divide that by the
number of shares the company has issued. Only if the current price per share
is significantly lower than that (the "margin of safety") should you think
about buying.

~~~
byrneseyeview
Which is about as specific as "First you should figure out what it is that
cures cancer, and then you should have people with cancer do that thing."
Calculating the intrinsic value of a business is very, very difficult -- which
is why Buffett is so rich from being good at it.

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aaronsw
More at <http://www.youtube.com/watch?v=kVvyVVoLH8U> for those who just can't
look away.

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goodkarma
I doubt I would have watched that when I was a kid, but I will DEFINITELY
watch it now. The cartoon format makes it kind of goofy, but the content is
great.

