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Is the Secret of Buffett's Success Luck or Skill?

Thursday, 11 Feb 2010 04:11 PM

By Bill Spetrino

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“The Black Swan” author Nassim Taleb recently decided to gain publicity for the expanded version of that book, due out in May, by saying something highly suspect.

He incredibly said that Warren Buffett’s success in earning more than $150 billion for himself and his investors during the past 65 years is not necessarily due to skill — and that there is insufficient evidence to think that is so.

Taleb compounded his foolishness by saying, “George Soros has two million times more statistical evidence that his results are not chance than Buffett does. Soros is vastly more robust.”

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Taleb made himself famous with the book “The Black Swan: The Impact of the Highly Improbable,” which came out in 2007 before the subprime mortgage crisis.

Although I do not share Soros’ anti-American left-wing views, there is no doubt he is one of the greatest investors in the world.

The fact that Soros has made $9 billion during a 45-year period is evidence enough for me.

Buffett, on the other hand, has been making capital-allocation decisions for 65 years and has made more individual decisions than Soros.

Buffett also has made larger bets and larger profits than Soros, or anyone else.

For me, it’s real simple.

Taleb is not a billionaire, not even close.

And by his admission, his career as a trader was not very profitable.

The bulk of his net worth was earned by selling books — not trading stocks.

The fact is that he NEVER predicted anything about the current crisis.

He only said to prepare for “black swan” events, which is hardly profound.

He did say this crisis would be “vastly worse” than the Great Depression of the 1930s, when unemployment was well above 25% and many went through garbage cans and soup lines in order to eat.

Of course, a stopped clock is right twice a day. But Taleb’s record is not even that good.

I had less than $6,000 22 years ago.

I studied Buffett’s entire investing career and designed a formula based on his past stocks.

By reading all his correspondence and practicing the lessons they contained, I reached financial independence and modeled my own Dividend Machine based on Buffett’s theories and formulas.

So, excuse me for thinking that Buffett’s theories are not based on random guesses.

Are the thousands of the readers of my newsletter and the thousands of millionaires that did nothing but buy Buffett's Berkshire Hathaway stock or study Buffett now somehow supposed to be lucky?

According to Taleb, a guy who won a $250 million Powerball jackpot based on guessing seven numbers is the same as Buffett turning paper-route money into more than $150 billion of gains during the past 65 years.

Both are lumped together as being lucky.

Each person is entitled to an opinion. But after reading the facts stated above, you are able to draw your own conclusion.

Maybe the title for Taleb’s next book should be “Why Let the Facts Interfere with an Entertaining Story.”

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