Proof in the Buffett pudding

After half a lifetime, I finally made it to Halifax to commemorate the 100th anniversary of the ill-fated explosion that killed my grandfather in 1917. On arrival, we drove straight to the sketchy old neighbourhood my dad was born in, expecting catharsis. We hadn't come to a full stop, when, right under the street signpost marking the spot, a drug deal was going down.

The dealer stink-eyed me (he thought menacingly) but the family history ferry couldn't have arranged a more fitting welcome wagon, and I burst out laughing, which put the him off-balance. I couldn't get him to pose for the family album, but he was polite enough to scoot out of the way so I could get the street sign in the selfie, with the neighbourhood over my shoulder, a milli-particle of my DNA poking up through the pavement in a dandelion.

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I had an ancestor at the first Canadian Thanksgiving, a nephew who was the subject of an FBI manhunt, a great-great-great uncle who purportedly rode with Billy the Kid and another nephew named Jack Ryan. I've got an uncle who was once the No. 2 man at a massive Canadian corporation, a first cousin who was an ambassador to China and a genius nephew working at a hotshot engineering firm in New York City. My mother-in-law published a fascinating autobiography.

And, oh, I won six blue ribbons in the Eastview Elementary Sports Day in 1970.

But none of this is might be statistically interesting. With something like 250 cousins and nieces and nephews, there's going to be things to be embarrassed about and things to boast about.

And, as the kids say: "Cool story bro, but isn't this a financial column?"

Investing is a bit like a baseball post-game show. We love to examine statistics, performance, extrapolating something useful from it -- like a career, or a thoughtful gauging of risk and opportunity against the temperament of the client.

The debate in financial academia is whether market performance is behaviourally predictable or more like a severely drunken man's hobble homeward -- a random walk down Wall Street, as famously coined by Princeton economist Burton Gordon Malkiel. His Efficient Market Hypothesis purported that the market adjusts to data quickly and emotionlessly enough to make strategies based on financial analysis border on impotent. Exchange Traded Funds more or less grew off the eraser shavings of this concept.

The other school of thought, championed by Warren Buffet and others, retorts that people who use all three full names might be pretentious theorists who made more money selling their concepts than investing in them. Both Malkiel and Buffett were born during the Depression and obtained university educations. Both started young in the world of finance, although Malkiel delved deeper in theory and Buffett got busy investing.

In fairness, Malkiel added value to the discussion, but both can't be right. Both are very wealthy men today. It's difficult to know precisely how well-off, but estimates suggest that Malkiel's net worth today is about 1/1000th of Buffett's $88 Billion. I think I could live on a small chunk of Warren's wallet, but in terms of whose theory holds more water, we don't need any new math. Analysis complete.

-- Mark Ryan is an Investment Advisor with RBC Dominion Securities Inc. (Member-Canadian Investor Protection Fund), and these are Mark's views, and not those of RBC Dominion Securities. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. See Mark's website at: http://dir.rbcinvestments.com/mark.ryan

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