12 ATaleofTwoMarkets
Windsor Fund (Vanguard); Mario Gabelli; David Schafer; William
Ruane and Richard Cuniff of the Sequoia Fund; Tom Knapp of
Tweedy Browne; John Templeton; Mason Hawkins of Longleaf Part-
ner Funds; and untold others.
BARREL OF MONKEYS?
Can it be, as EMT devotees resort to saying, that these are anomalies
too—that these folks are all merely lucky? Is it plausible to believe
that they are just like the imaginary monkey who would produce the
entire script ofHamletby randomly hitting the typewriter keys? Even
if you agree that this is possible, to complete the argument the imag-
inary monkey would also have to be able to punch in the correct
keys to generate the full scripts ofRomeo and Juliet, Macbeth, King
Lear, Henry IV, and pretty much the entire Shakespearean canon.
Even if this is theoretically possible, such a prolific monkey (or a
barrel of monkeys) seems incredible.
The monkey view acknowledges that luck plays a role in invest-
ing, as it does in other aspects of life. The leading populist apostle
of this “lucky monkey” viewpoint is the Princeton professor Burton
Malkiel, who explains it in his bookA Random Walk Down Wall
Streetby using a coin-flipping contest.^10
Start with a thousand people flipping a coin, with those flipping
heads being the winners and going to the next round. By the laws
of chance, on average 500 will flip heads and 500 will flip tails. The
500 flipping heads proceed to round two, where, again by the laws
of chance, half will flip heads and half will flip tails. The 250 lucky
heads flippers go to round three, where 125 of them win; 63 of those
win round four; 31 win round five; 16 win round six; and 8 win the
final round and are proclaimed “expert” coin flippers.
Yet resorting to luc kas an explanation of investment success
leaves the explanation incomplete. First, investing is simply not like
coin flipping, though speculation and gambling may be. The great
investors do some homewor kand develop a set of investment pre-
cepts to guide them in their selection of investments. They don’t
simply flip a coin in choosing which investments to make. They
certainly do not decide between, say, IBM and Clorox by pasting
their logos onto a coin, with the logo landing face up getting the
capital.
Second, the lucky monkey would have to have been banging on