Proof positive

I am being assailed by people pointing out that Berkshire Hathaway has done spectacularly, and therefore this EMH stuff is a bunch of hooey. I could point out that if you'd had a million guys flipping coins repeatedly for a year, at least one of them would have come up with a massive streak of heads. Even if you paid him $1mm for each heads flip, this would not actually be attributable to his awesome coin-flipping skill. Indeed, you'd have at least one cluster of guys who'd done well . . . perhaps fellows who'd gone to Harvard together, or people who'd all studied "Value Coin Flipping" under a master. There would be other outliers, and other groups of people who'd studied "Fundamentalist Coin Flipping" or "The Vincenzi Flipping Technique" who would not have done well. But no one would be looking to them for advice, so you would never have heard of them, and it would seem like a minor miracle that this guy, this technique had just produced such amazingly outsized returns.

As even hedge-fund managers will tell you, most of the strategies they explore look terrific in back-testing, and flunk a real time run. And many of the things that pass the real-time runs turn out to be a pretty good way to lose money as soon as the market changes.

The market always changes.

But say you're right. Say Warren Buffett is every bit as good as you say he is. I beg you to consider two questions:

1) What will happen to the price of your Berkshire Hathaway stock when Warren Buffett dies?

2) Do you have any way of predicting when he is going to die?

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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