Random Walk Index

The market is unbeatable. Trying to beat it by buying this stock, selling that one? Good luck. You’re this guy, the retail brokerage customer. You might get lucky and find the next NFLX just after the IPO. Or you might end up here...Yep, alligator swamp, where you’re...financial lunch.

But if you take enough random walks, and even if you find gold. Or Silicon Valley real estate eventually, you’ll end up here: Doing the same performancewise financially as does the overall stock market. See: Regression to the Mean.

That's the random walk theory. It just claims that the market is unpredictable. You can’t beat it. Pretty much just like the Efficient Market Theory.

Well, given that quite a few investors have beaten the market over time. And a few, like Warren, have crushed it, who could have come up with such an idea, and like…when?

Well, it’d be the French. In 1863. Jules Regnault. And, over time, a bunch of other eggheads tried to mathematically prove that the market was unbeatable.

Their errors largely revolved around missing the notion that buying a concentrated portfolio of a dozen or so high quality companies. And not buying into crappy industries like airlines or paper or anything highly unionized, made it a pretty decent bet that individual investors, over long periods, could in fact beat the market.

Oh, and those investors? They’re rich. The professors with the misguided, not-street-smart math?

Yeah, they’re uh…professors.