Stocking picking PQ randomly distributed?

Somewhere earlier in this blog or in an article, I speculated that the great investing success of Peter Lynch, Warren Buffett, John Templeton and a handful of others is not due to them being lucky stock pickers/coin flippers (as the Efficient Market Theory would have to claim), but neither does their success refute the Efficient Market Theory.

According to EMT, it's extremely difficult to beat the market on a long term basis -- but not necessarily.

I speculated that the ability to beat the market long term was made up of a number of personal qualities which were distributed randomly through the human population. So, quite by randomness, those individuals were born with and had the opportunity to develop the qualities that made them able to beat the market.

Therefore, the ability to beat the market still adheres among money managers, pension fund managers and mutual fund managers to a normal distribution, where only a small percentage do in fact beat the market long term.

Yet it's not due to luck in stock picking, but "luck" in the sense they were born with the ability (or, most likely, combination of abilities).

Anyway, in reading CAPITAL IDEAS by Peter Bernstein, he says something to the same effect, calling this beat the market long term ability "Performance Quotient" or PQ and speculates that only a tiny percentage of the population has the genius-level PQ.

He brings up an idea I didn't think of -- that most people with PQ do not manage money for others. They prefer to keep their talent (which still has to be coupled with hard work, just as people with high I.Q.s still have to work hard to come up with genius level ideas) and their investing results to themselves.

I'm not so sure of that -- successful money managers can make a lot of money by managing other people's money. Yet it's also true that the most successful managers are probably just as good or better at selling themselves than at their long term results. And many people with a high PQ may not be good at selling themselves -- it's a separate talent, after all.

Yet Warren Buffett started out forming a limited partnership with friends and relatives.

So who knows -- it's one thing to have a high PQ. It's another thing to have enough money to invest with it so that you can get rich.


Stock Picking
Stock Picking