Thursday, July 7, 2016

Superinvestors, Superforecasters

The strategist Byron Wien once remarked to George Soros that on the investing equivalent of Mount Rushmore, there were two faces - Soros himself, and Warren Buffett. Soros responded, "You couldn't find two more dissimilar figures." Others who know Soros well have echoed this sentiment. In Inside The House Of Money, Scott Bessent commented, "[Soros] is the opposite of Warren Buffett. Buffett has a high batting average. George has a terrible batting average - it's below 50 percent and possibly even below 30 percent - but when he wins it's a grand slam. He's like Babe Ruth in that respect. George used to say, "If you're right in a position, you can never be big enough.""

Yet, despite the sharp differences in their styles, the two share analytical and philosophical traits that have contributed to their success. In the same interview, Wien asked Soros if his successful shorting of the British pound in 1992 was predetermined. Surely, he asks, Soros was able to participate in size and thereby influence the outcome of the event? Soros demurs, "It was not so predetermined. In retrospect, it was predetermined, but not in prospect. Believe me, speculation is not without risk, and the outcome is far from assured." This philosophical outlook might ring a bell for those familiar with Philip Tetlock's excellent work on Superforecasters, summarized here by Michael Maubossin and Dan Callahan:

Soros's non-determinism shines through in the earlier quote, but it's remarkable how many of the other characteristics he exhibits. For example, the quote that forms the title of this blog marks him as being actively open-minded. His pragmatism is apparent from his trading style, and his forays into philosophy demonstrate his reflective nature. 

While Buffett may have used the term "superinvestor" to refer specifically to value investors, it seems clear that "superinvestors" more broadly are really "superforecasters." Regardless of investment style, the greatest investors are skilled analysts of probabilities, and are able to perceive when those odds are overwhelmingly in their favour. They also possess another rare quality - having the courage of their convictions to bet accordingly. 

It's hard to know whether superinvestors are just naturally endowed with these skills. But for those of us gazing up at Mount Rushmore awe-struck, it's worth paying attention to the last characteristics of superforecasters: believing it's possible to get better, and being determined to keep at it, however long it takes.

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