“According to the proposed chart, Bill Gates and Warren Buffet were destined for the dumpster as investors, from ignoring the “counsel of experts””

Ummmm, last time I checked one of Warren Buffets tantamount theories is that he isn’t that smart of a guy but he has placed very skilled people in positions around him to allow Berkshire to prosper so well.

Warren Buffett:

“It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction. ”

As a side note though as long as I already have his quotes page open, one of my favorite Buffet quotes:

“If past history was all there was to the game, the richest people would be librarians. ”

but seriously, so what you’re saying is that there are sometimes exceptions to general rules on psyche!?

NO SH*%

According to the proposed chart, Bill Gates and Warren Buffet were destined for the dumpster as investors, from ignoring the “counsel of experts”, under-diversifying, and having an abundance of over-confidence.

These sort of simplistic models are pretty much the equivalent of the “warm flannel blanky” for those who are doing well, and the unending panacea for those who are not.

You can take the converse of pretty much every one of these things, and make something out of it that is ludicrous to think that it is a guideline for perfection in the investment world — for example: “Underweight more aggressive investments”, representing “Myopic loss aversion” has no counterpart in the above diagram, something like “Overweight risk”.

Obviously, the true “Golden rule” lies somewhere along the lines of “balance risk and reward appropriately” — but that leads directly to the questions of “what is the appropriate balance between risk & reward?”, and then closely followed by “how does that balance shift according to each individual’s personal situation?” Before you know it, you are sitting on the doorstep of the realization that you cannot model a complex and ever-changing activity with simple platitudes.

The end result of the notion that investment success is solely a matter of learned skill is the screen play to Trading Places. The Reality is that investment success is an amalgam of innate personal skills, luck, and access to capital, and opportunity. And the greatest of these is luck, as it is luck that allocates personal skills, access to capital, and opporrtunity.