Quotes from One Up on Wall Street

Investing in stocks is an art, not a science, and people whove been trained to rigidly quantify everything have a big disadvantage. If stockpicking could be quantified, you could rent time on the nearest Cray computer and make a fortune. But it doesnt work that way. All the math you need in the stock market (Chryslers got $1 billion in cash, $500 million in long-term debt, etc.) you get in the fourth grade. In centuries past, people hearing the rooster crow as the sun came up decided that the crowing caused the sunrise. It sounds silly now, but every day the experts confuse cause and effect on Wall Street in offering some new explanation for why the market goes up: hemlines are up, a certain conference wins the Super Bowl, the Japanese are unhappy, a trendline has been broken, Republicans will win the election, stocks are oversold, etc. When I hear theories like these, I always remember the rooster. It seemed to me that most of what I learned at Wharton, which was supposed to help you succeed in the investment business, could only help you fail. I studied statistics, advanced calculus, and quantitative analysis. Quantitative analysis taught me that the things I saw happening at Fidelity couldnt really be happening. I also found it difficult to integrate the efficient-market hypothesis (that everything in the stock market is known and prices are always rational) with the random-walk hypothesis (that the ups and downs of the market are irrational and entirely unpredictable). Already Id seen enough odd fluctuations to doubt the rational part, and the success of the great Fidelity fund managers was hardly unpredictable. It also was obvious that Wharton professors who believed in quantum analysis and random walk werent doing nearly as well as my new colleagues at Fidelity, so between theory and practice, I cast my lot with the practitioners. Its very hard to support the popular academic theory that the market is irrational when you know somebody who just made a twentyfold profit in Kentucky Fried Chicken, and furthermore, who explained in advance why the stock was going to rise. My distrust of theorizers and prognosticators continues to the present day. After the Maine Sugar fiasco I vowed never to buy another stock that depended on Maine farmers chasing after a quick buck.