1998: Since every school seems to teach the efficient-markets hypothesis, where could someone find a mentor like Ben Graham?

AUDIENCE MEMBER: Good morning. My name is Joe Lacey (PH). I’m from Austin, Texas.

In this era when the financial departments of the institutions of higher learning are referring to you as an anomaly, and they preach the efficient markets hypothesis, saying that you can’t outperform the market, where does one go to find a mentor like you found in Ben Graham? Someone you can ask questions to regarding value investing.

WARREN BUFFETT: My understanding is that the University of Florida has instituted a couple of courses that, actually, Mason Hawkins gave them a significant amount of money to finance. And I believe they’re teaching something other than efficient markets there.

There’s a very good course at Columbia I know that gets a lot of visiting teachers to come in. I go there and teach occasionally, but a number of practitioners do.

So there — I think the efficient market theory is less holy writ now than it was 15 or 20 years ago in universities, but it’s — there’s a lot of it taught, but I think you can find more diversity in what is being offered now than ten or 20 years ago. And I’d recommend, you know, looking into those two schools.

You know, it’s really quite useful. If you had a merchant shipping business, if all of your competitors believe the world is flat, you know, that is a huge edge, because they will not take on any cargo to go to places that are beyond where they think they will fall off. And so we should be encouraging the teaching of efficient market theories in universities. (Laughter)

It amazes me. But, you know, I think one time that — was it Keynes that said that most economists are most economical about ideas? That they make the ones they learned in graduate school last a lifetime. (Laughter)

And what happens is that you spend years getting your Ph.D. in finance and you learn theories with a lot of mathematics in them that the average layman can’t do.

And you become sort of a high priest. And you get an enormous amount of yourself and ego, and even professional security, invested in those ideas. And it gets very hard to back off after a given point. And I think that to some extent has contaminated the teaching of investing in the universities.

Charlie?

CHARLIE MUNGER: Well, I would argue that the contamination was massive. (Laughter)

But it’s waning.

WARREN BUFFETT: Yeah, it is waning.

CHARLIE MUNGER: It’s waning. The good ideas eventually triumph.

WARREN BUFFETT: Yeah. The word “anomaly” I’ve always found interesting on that, because, you know, after a while — I mean Columbus was an anomaly, I suppose, for a while. But what it means is something that the academicians could not explain, and rather than re-examine their theories, they simply discarded any evidence of that sort as anomalous.

And I think when you find information that contradicts previously cherished beliefs, that you’ve got a special obligation to look at it and look at it quickly.

I think Charlie told me that one of the things Darwin did was that whenever he found anything that contradicted some previous belief, he knew that he had to write it down almost immediately because he felt that the human mind was conditioned, so conditioned to reject contradictory evidence, that unless he got it down in black and white very quickly his mind would simply push it out of existence.

Charlie knows more about Darwin than I do. Maybe he can explain that.

CHARLIE MUNGER: Well, I don’t know about Darwin, but I did find it amusing. One of these extreme efficient market theorists explained Warren for many, many years as an anomaly of luck. And he got the six sigmas, six standard deviations of luck. And then people started laughing at him because six sigmas of luck is a lot. So he changed his theory. Now Warren has six or seven sigmas of skill. (Laughter)

WARREN BUFFETT: No.

CHARLIE MUNGER: So you see —

WARREN BUFFETT: I’d rather have the six sigmas of luck, actually. (Laughter)

CHARLIE MUNGER: The one thing he couldn’t bear to leave was his six sigmas. (Laughter)