Stock Market Secrets: Orangutans
The concept for this article has been unashamedly stolen from Warren Buffet although it has been given an an Australian flavour. He expounded the US version in a speech in 1984 commemorating the fiftieth anniversary of the book Security Analysis by Benjamin Graham and David Dodd, the bible of value investing.
He called his speech “The Superinvestors of Graham-and-Doddsville”. I’d call it “Orangutans”. Let me explain.
Imagine if you will a daily coin flipping contest conducted across the whole of the Australian nation. Everyone’s in. On the first day 21 million Australians flip a one dollar coin. The rules are that if you flip heads you stay in, if you flip tails you give your dollar to the ones who flipped heads.
Every day the losers drop out and the $21m pool of money is shared amongst fewer and fewer people. After day one there should be around 10.5m people left in the game and each will have won a dollar. This process goes on and every day the value of being in the game grows and the stakes rise for those left in.
Assuming the honesty of the losers, after ten days of flipping there will be around 20,500 people left in the game and each will have won just over $1,000. At this point there will be 20,500 people walking around Australia feeling pretty chuffed with themselves and their ability to turn one dollar into one thousand dollars in ten days. Pretty impressive. And no doubt some of them would begin getting a bit of mileage out of their position, dropping it into the conversation at nightclubs, expounding their theories on how to throw heads at dinner parties and generally making hay. The media would be stirring and the water coolers abuzz with talk of the local hero still in the game.
Five days of flipping later there would be 640 people left, each worth $330,000. Another five days later and there would be just 20 people left.
By this stage, each flipper would have thrown heads twenty times on the trot and each would have cracked the magic sum of just over one million dollars each. From one dollar to millionaire in twenty days. Wow.
Stop the contest and Australia would be swarming over the twenty, the flipping “elite”. The “Smartest” flippers in the nation. And they would make global headlines. And they would write books.
“Flip for Success”. “20 Top Flips”. “The Psychology of Flipping”. “Flipping for Dummies”. “The Idiots Guide to Flipping”. “Rich Flipper Poor Flipper”. “The Way of the Flipper”. “Common Flips and Uncommon Profits”. “The Intelligent Flipper”. “Mastering Flipping”. “The Flipping Way”. “How I made one million flipping dollars in twenty days” and the most recent record busting bestseller of them all, “Coin Flipping Secrets” by Marcus “The Big Flipper” Padley. And we would buy them.
Others would arrange motivational seminars on how to own a flipping massive portfolio in Queensland starting with just one dollar. And the investment banks would launch capital guaranteed leveraged flipping products that charge you a hidden 16% before you make a dollar. And we would buy them.
And we would trade online with E*Flip and CommFlip for a fraction of the cost of a full service flipper and the unsuspecting would trade highly leveraged “Contracts for Flippers”. And we’d buy ten CD Flipping Courses plus steak knives in three easy payments on the 1300 number on the late night infomercial.
And the irrefutable proof of the benefits of flipping would be the 20 people left in and their results. How could we argue with that. They exist. Flipping can clearly transform your life and yes, you too can flip.
Of course the results would have been the same had twenty one million Orangutans been doing the flipping, but then Orangutans aren’t very good at marketing.