The Monkeys Win…Especially The Ones Who Understand Growth

Burton Malkiel is not just any old investing fart.

He published ‘A Random Walk Down Wall Street’ over 40 years ago.

I’ve always said CNBC should just broadcast a group of monkeys throwing darts all day and ratings would soar, but like Burton, I am misunderstood.

After 40 years, Burton is finally universally loved. Bloomberg has the headline and the story.

I say be careful when everyone finally agrees that one way works best.

I have never indexed. I am often told I smell like a monkey and look like a monkey and behave like a monkey. I think darts is a stupid game.

I do agree that indexing with dollar cost averaging and rebalancing can be done by every American (without the use of any advisor) but a good advisor to keep you on a simple track is a bonus.

I prefer, as readers here know, to try and trounce the markets and not index it. I don’t use leverage and rarely have more than 50–70 percent invested, and am willing to hold stocks for a day but prefer five years.

I am fascinated by the big hedge funds that continue to underperform the monkeys and the indexers.

Today, if we hear a big hedge fund is beating the indexes, we assume they are cheating or taking insane risk.

I think the funds have gotten too complicated and fancy with formulas and have missed the biggest shift in the markets…how growth is valued. Take a read of ‘A New Growth Theory’ whose author Esko Kilpi has some interesting theories on growth

What assets were for the industrial firm, network effects are for the post-industrial firm.
We all have mindsets of the world that serve as maps that guide what we see and how we understand the world around us. The maps can be helpful but also outdated and crucially incorrect. The approach that managers do the coordination is just too slow and too costly in the low transaction cost environments we live in.
Traditional business economics focuses on supply-side economies of scale derived from the resource base of the company. It scales much more slowly than the demand-side network effects the new firms are built on. Network effect-based value can increase exponentially at the same time as costs grow linearly, if at all. If you follow the valuations of firms today, there is an ever-widening gap between the network-economy platforms and incumbents driven by traditional asset leverage models. Investors and markets have voted.

This theory might also explain our fascination with private markets and angel investing coming out of the end of ‘financial leverage’ era of 2008 into the era I like to call ‘social leverage’.


Originally published at Howard Lindzon.

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