There are always lottery winners
As we pointed out several times before, the biggest open ‘secret’ in investing is the consistency. Investors’ biggest enemies are themselves, who are constantly struggling between greed and fear, exacerbated by 24/7 noises in today’s internet era. Every now and then we hear that some investors have done so well and envy those who make big fortunes. What is worse, human nature drives us to follow the foot steps of these fortunate ones, only to be disappointed.
Warren Buffett, one of the greatest investors, has written many witty and insightful essays for everyday investors. In the following, we would like to analyze the example he gave in a talk at Columbia University in 1984 (The Superinvestors of Graham-and-Doddsville):
I would like you to imagine a national coin-flipping contest. Let’s assume we get 225 million Americans up tomorrow morning and we ask them all to wager a dollar. They go out in the morning at sunrise, and they all call the flip of a coin. If they call correctly, they win a dollar from those who called wrong. Each day the losers drop out, and on the subsequent day the stakes build as all previous winnings are put on the line. After ten flips on ten mornings, there will be approximately 220,000 people in the United States who have correctly called ten flips in a row. They each will have won a little over $1,000.
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