Consider (source) an excerpt:

Why is the EMF theory so widely advocated? Academics love EMH because they can claim that they have mathematics-based formulas which can predict the future even though the underlying assumptions (borrowed from physics) are provably false. For a professor, the ability to create beautiful mathematics is important since it means that they are less likely to be teased by physicists in the faculty club. Life is infinitely more interesting for an academic if they can create beautiful mathematics in their papers.

Charlie Munger adds:

“I have a name for people who went to the extreme efficient market theory—which is “bonkers.” It was an intellectually consistent theory that enabled them to do pretty mathematics. So I understand its seductiveness to people with large mathematical gifts. It just had a difficulty in that the fundamental assumption did not tie properly to reality.”

More Munger:

“The possibility that stock value in aggregate can become irrationally high is contrary to the hard-form “efficient market” theory that many of you once learned as gospel from your mistaken professors of yore. Your mistaken professors were too much influenced by “rational man” models of human behavior from economics and too little by “foolish man” models from psychology and real-world experience.”

More Munger:

“Efficient market theory [is] a wonderful economic doctrine that had a long vogue in spite of the experience of Berkshire Hathaway. In fact one of the economists who won — he shared a Nobel Prize — and as he looked at Berkshire Hathaway year after year, which people would throw in his face as saying maybe the market isn’t quite as efficient as you think, he said, “Well, it’s a two-sigma event.” And then he said we were a three-sigma event. And then he said we were a four-sigma event. And he finally got up to six sigmas — better to add a sigma than change a theory, just because the evidence comes in differently. [Laughter] And, of course, when this share of a Nobel Prize went into money management himself, he sank like a stone.”

I will add more to this on today’s podcast (will be episode 51).

Synopsis: Michael Covel sometimes feels like he’s floating above and looking down like the protagonist in David Bowie’s “Space Oddity“. In today’s episode Covel closes this alienating gap with his explanation of the “lottery society“: The idea that you don’t have to work–you simply make a small bet of your time and money and your your entire world can change through one single action (even though the odds say there is no chance). We’ve pushed aside the notion of purposeful, driven, consistent effort and work. You can see the concept of a “lottery society” beyond the notion of buying a scratch-off: the idea that the Presidential election will change your life, reality shows and American Idol’s instant fame fantasy and drugs and alcohol as the quick fix. It all sounds well and good, but the lottery mentality doesn’t work. It sucks the life out of you. How did we even get to the point where being “picked” has replaced the notion of good, consistent hard work and creating something from scratch? It’s the gap between wishing and doing. We’re in a fantastic world of distraction and the lottery mentality is a perfect example of that distraction. Covel goes on to explain the parallels between fundamental analysis and the lottery mindset; perspectives on the lottery mindset from writer Seth Godin; the perils of watering down a clear trend following trading strategy with short term trading strategies, fundamental analysis, and media input; and the illusion that tools such as the iPhone make us more productive. Next, Covel notes how many want a hero these days (instead of viewing themselves as heroes). Currently, the “hero de jour” is Ben Bernanke, chairman of The Federal Reserve–except most don’t have a grasp why his current rate policy is so problematic. When you have rates artificially reduced to zero it forces people to invest in the stock market. Covel offers commentary regarding current Fed policy by giving context via an exploration of recent tech and real estate bubble histories. As Charles Hugh Smith (www.oftwominds.com) has noted, “If you prop up an artificial economy long enough, does it become real?”. Covel gives his personal view of the current situation: You know it’s bad, you know it’s eventually going to pop, but what do you do? That’s the hard question. So how can you profit in the face of such uncertainty? Trend following is the profit answer when the black swan swims in. Special offer: Receive a free DVD here: http://www.trendfollowing.com/free.html.

The lottery has long been a debate of mine. From Texas press:

An excerpt from my film Broke:

Dan Gilbert opines:

“Forgive me, for those of you who play the lottery — but economists, at least among themselves, refer to the lottery as a stupidity tax, because the odds of getting any payoff by investing your money in a lottery ticket are approximately equivalent to flushing the money directly down the toilet.”

Indeed.

Excerpt from Broke: The New American Dream.

Isn’t this excerpt from my film Broke appropriate?

Which brings me to this newspaper clipping forwarded along:

Shout to Alastair Murray for the find.

The LInkedin IPO is not a trend following play. If you had shares pre-IPO it was one great trade, but if you are trying to play that now–it is gambling. Or you could think of it as buying a lottery ticket–risk a little and maybe you get lucky.

From the wires:

WICHITA, Kan. – Edward Williams is the definition of lucky after winning the lottery for a second time in a year. Williams, 47, of Wichita won $75,000 in September playing a $10 scratch ticket. Then on Wednesday, he defied the odds again when matched all the numbers in the Super Kansas Cash drawing to win a jackpot worth nearly $900,000…He said he has been playing Super Kansas Cash, Powerball and other lottery games consistently for 17 years. “Just keep on playing,” advised Williams, who buys a $5 Quick Pick for every Super Kansas Cash drawing. “That’s the best advice I have for other people looking for that big win.”

So is everyone afraid to call this guy an idiot for his “advice” to keep playing just because he won so much money? I saw this article and thought of my film “Broke”. My film addresses the idiocy of this “lottery math” head on.