[David Sklansky]

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One last try. The Bellagio makes a line on football games. They are the best linemakers in the world. Their line is almost always perfect. So even a professional bettor who beats his bookie 56% of the time only picks 50.1% when he faces the Bellagio.

Joe Schmo is barely break even in his opinions. But he is better than the dart board thrower. (This is an important point.)

The Bellagio says the Yankees will win 70% of the time today. Joe Schmo thinks they will win 60%. In other words the Bellagio says that anyone holding a $100 even money bet has an equity worth $40. Joe says it is worth $20. Its TRUE worth is a tad below $40. Maybe $39.50. Change Joe Schmo to Mr Market. (And I would still love to bet that Buffett both agrees with me and doesn't think his words dispute my words)

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The information Joe Schmoe uses to form his opinion is presumably available to the Bellagio. Therefore, the Bellagio and Joe use the same information to reach their conclusions. The Bellagio tends to reach much better conclusions based on the information available. Thus, there is no reason to pay attention to Joe. Any difference between Joe's estimate and that of the Bellagio is likely the result of Joe's error.

Where Joe is correct, the Bellagio will also be correct. Joe's opinion is worthless - unless you're betting against Joe, in which case a large discrepancy between Joe and the Bellagio will indicate that you should put it all in there!

I don't know much about investing, or when to buy and sell, but I think your example here is flawed, David. It's no more likely that the actual value is $39.50 than that it's $40.50.

Very nice thread, makes me want to learn about financial analysis.

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First of all what I am saying is unquestionably correct in the real world. I will get to that in a minute. In the theoretical world I am saying that that if Jack is right about something 90% of the time and Jill is right even as little as 51%, then when they disagree, Jack's probability has gone down to 89.9% or whatever. If they are totally independent chances it easy to figure out the exact answer. You are saying Jack's probability doesn't change because they are not independent. He will get every question right that Jill will, plus more. If that was the case Jill's disagreement means nothing.

But that total lack of independence is obviously not the case in the stock market or sports betting. And once that is true, my contention MUST be true. It isn't even a contention. It is just an irrefutable math problem. If there are two differing opinions the true answer lies somewhere in between. On average. But closer to the guy who gets things right more often. As long as the other guy is better than random.

As to the real world, how can it not be obvious that I am right? Experts who use the Buffett-Graham-DesertCat technique make their play when their figures show they have some required big edge. When the smoke clears they are ahead, But obviously not to the extent that they thought they should be. Otherwise they all would be trillionaires. So the true price lays somewhere between their's and the market's.

Now why that should be the case is not clear. It is obviously sometimes because someone is illegally trading on inside information. But that is too rare to fully account for the syndrome.

When technical analysts say that the market will tell you where a stock is heading they are probably morons. But it is not moronic to say that the market is one of the best experts in telling you what a stock should BE. There are a few people who are even a little better than that. But if they are disagreeing with Mr. Market they should be very aware that the disagreement could signify that they have made at least a partial mistake.

BUT, their discomfort and trepidation should reduce if they can PINPOINT the reason why Mr. Market is disagreeing and refute his reason. When that happens they don't need to give themselves as large a margin of error.

I can't believe I'm going through all this again like I did thirty years ago in poker. You guys all need to just shut up, do what I say, and make more money.