Warren Buffett is one of the world's richest men, having made most of his fortune investing his own and other people's money. He has been consistently good at the investment game with amazingly few bad decisions to tarnish his track record.
With such an investment performance behind him, he could be forgiven a little arrogance and we might expect him to have some elaborate theories about the factors that breed success in the complex world of financial markets.
Not a bit of it. Buffett seems to think that it is all rather straightforward. He believes that the only truly sound investment principles that have stood the test of time are those that were laid down over a half century ago by two very successful operators called Graham and Dodd.
Buffett's philosophy is simple: if you have a long enough time horizon and stick true to the principles of "value investing", you will make money.
Those principles? Buy undervalued assets. It sounds so easy and has worked so successfully for Buffett, that it must be a mystery to him why everyone doesn't do it.
He has strong opinions about investors who have been successful despite not following his approach. He tells an amusing and elaborate anecdote to illustrate his point.
Imagine a lottery that involves the population of the US each being asked to toss a coin. That's close to 300 million people being asked to call heads or tails. The law of probability being what it is, roughly half will get it right.
Most people understand that this will be by pure chance. But then imagine that the roughly 150 million successful callers are asked to toss again. And so on. There is a very good chance (although by no means certain) that you will be left with, say, 100 people who have consistently called it right.
And many people will begin to ascribe more than luck to the coin-tossing skills of these winners. They will appear on chat shows and in glossy magazines. They will be asked the secrets of their success. Do they toss in a particular way? At a particular time of day? Do they read research into tossing?
The remaining 100 people are asked to toss again. Chances are, 50 will be left; 50 people who seem to be able to call the toss of coin correctly time after time. These 50 people will receive begging letters; they might even be asked to lay their hands on the sick. They will certainly be rich.
Buffett's point is obvious. Successful investors who have not followed the basic principles are just lucky. Fund managers who have no knowledge of the thoughts of Graham and Dodd and who have long track records of healthy returns are probably just successful coin tossers. Their success is just pure statistical fluke and not to be relied on.
All of this is a rather light-hearted dig at the fund management industry and the investment bank research teams that sell ideas to them. The suggestion is that there are a whole lot of overpaid tossers throughout the industry.
But, if this is right, it raises a lot more questions than it answers.
Is Buffett right? Or could he be just as lucky as his apocryphal coin tossers and is the significance of value investing simply as great as the decision about whether to toss with your right or left hand? Doesn't the presence of undervalued assets - without them, value investing is meaningless - require unsuccessful tossers to create the pricing anomaly in the first place? I don't know. Nor does anybody else. That's the amazing thing.
What is good or sound investment practice is still hotly debated. Nobody knows the right formula for success. If you thought it was just economists who always disagreed, you should read the finance literature. Which is all a bit sad really, since so much rests on the outcome of any investment process, not least the value of our pensions.
My guess is that Buffett is half right and very lucky.
His luck stems not only from a few correct calls of the coin toss, but also because of the luxury that he has been given by his investor base. They have given him lots and lots of time. Given enough time, value investing is the best approach - although with a few more bells and whistles than envisaged by Graham and Dodd.
The finance industry is, however, too often characterised by short-term time horizons and flaky investment theories that turn far too many - but by no means all - of its participants into pure tossers.
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