“If 99% of people who buy corporations for a living can't beat a monkey throwing darts over time...why do we believe people who run corporations for a living are any smarter?“

Because the 1st requires predicting what other investors think about a company or the economy (after all, the stock price doesn’t move in align with its profits/revenues). Not whether a company will be successful.

The 2nd simply requires knowing what consumers want, whether they be individuals or businesses. You just need to solve their problems in a better way than competitors. So understanding the fundamentals of a market is enough.

What you're describing is the "Greater Fool Theory" of asset pricing...where the emotional temperature of other investors sets the price for an asset. This is true only for assets that don't produce cash flows and thus can't be valued using traditional valuation models (ie. like gold, crypto, etc).

Businesses on the other hand are properly valued for their profit/revenue potential given the available information at the time. This has been proven over and over again. The data is clear on this; the high level of market efficiency is why the stock market is so hard to beat.

Successful investing (not trading) absolutely does require predicting whether a company will be successful. Both investors and employees of a company need to be correct about the thesis for why the company solves a consumer need. Otherwise both parties will lose.

IIRC, this is one of Warren Buffets main strategies and why he beats the market. He mainly invests in companies that are undervalued and with good cash flows. He doesn't have to risk the market coming to their senses like with shorting because even if the stock price goes down, he just holds onto it and rakes in those cash flows.

Point taken. I was talking more about trading, not investing long-term. If we're talking about long-term investing, most funds have strict limitations, and can't be too focused on any one single stock/sector too much.

Warren Buffet famously says he likes to invest in businesses that could be run by a ham sandwich.

"I try to invest in businesses that are so wonderful that an idiot can run them.

Because sooner or later, one will." --Warren Buffett

Whether the quote is by Buffet or not, I really wish I could be so "idiotic" as to get paid tens of millions of dollars a year as a CEO.

Just one year would be enough, actually.

I think the quote is by Peter Lynch from the book - One Up on Wall Street.

Perhaps, though Googling the quote has SERPs more than 25:1 in favor of Buffett as origin.

No wonder he's doubling down on Apple.

> what would really change if we removed the CEO and replaced him with the Janitor?

I think this reads rather more out of the conclusion than the data can bear. It's possible (though I don't think plausible) that it's true, but the data is only based on people who were selected to run companies i.e. people who those doing the hiring saw to be a good fit. It says nothing about being run by a random person off the street, for which there is necessarily no data.

> If 99% of people who buy corporations for a living can't beat a monkey throwing darts over time...why do we believe people who run corporations for a living are any smarter? They're both looking at the same corporate balance sheets and industry trends!

The market acts as a filter which means that people still need to create and run create the enterprises for it to be able to value them.

Anecdotally, having spoken with both CEOs of very big name billion+ dollar companies and with many money managers, professional investors, and various other finance hucksters, I can say with assurance that the high end CEOs have considerably greater cognitive ability on average. People like Warren Buffett represent a kind of best of both though, since he is a successful CEO as well as investor. I think it comes down competition. Managing someone else's money for a 1-2% vigorish isn't really an activity that takes much investing skill to be successful at, especially since nobody else knows how to predict dynamic chaotic systems either.

Also, given how many new businesses fail, there is probably some survivor bias here too on CEO performance.

An important part of an executive’s job is hiring the right people to execute, which requires some level of skill or networking in my opinion, even if results aren’t always guaranteed.

But the data here says there is no statistically significant benefit to picking an “in-network” (ie. Former McKinsey, Goldman Sachs, Harvard, etc) executive. Which is the homogenous network that these people will continue to cultivate.

This data says the parochial boys club doesn’t deliver any difference from the average state-school “rose through the ranks” type of executive.

The person I was responding to was postulating what would happen if a janitor was made CEO, to which I am saying there are some important skills or experiences that not everyone will have.

I think they were being a bit extremist with their language to make a point. However, fun anecdote, at my high school one of the janitors was a multi-millionaire (we lived in a fly-over state in a small city, so he was crazy rich by our standards).

He made it all because he was extremely good at playing/investing in the stock market (he never had a professional job in his life). The economics teachers would invite him to speak to their classes on a regular basis.

In other words: access to finance requires membership in an old boys club.

> One of the best things to come out of so-called “big data” is the slow destruction of the human ego.

True! But this isn't a case of big data. This is just data. They only looked at 8500 CEOs and only did basic statistical analyses, ie not "big data".

One of the key balances we have to have with big data is to not let our personal biases and hubris blind us to believe in incomplete formulas/solutions simply because it follows our preconceived notion of ourselves, the tool (big data in this case), etc.

What if you look at non-frontier industries where utilizing frontier know-hows can create a competitive advantage?

> If 99% of people who buy corporations for a living can't beat a monkey throwing darts over time...

They're not "buying corporations", they're gambling. As such, their success rate is about the same as in other forms of gambling.