An uncertainty guru says investors can't dismiss doubt — and even Warren Buffett's success may be down to luck

• Predictions carry doubt no matter who is making them — even if it's Elon Musk or John Paulson, one expert says.
• David Tuckett, an uncertainty researcher, told BI that dismissing doubt eventually "leads over a cliff."

Even the smartest minds in finance and tech don't know for sure what the future holds, and even the most successful investors may have gotten lucky, one expert says.

John Paulson — one of the few money managers to predict and profit from the housing crash of 2008 — recently proclaimed he would dump his stocks for cash and gold if Kamala Harris is elected president this November, as he expects markets to tumble.

Elon Musk responded on X that "Buffett is already preparing for this outcome," ostensibly suggesting Warren Buffett will offload stocks too if Donald Trump secures a second term.

"Investors will be led astray by Paulson, Musk or anyone else if they assess what he says about the future without recognizing uncertainty, or imagine the future in an (excited) divided state," David Tuckett, the author of "Minding the Markets," told Business Insider in an interview.

Tuckett, director of the Centre for the Study of Decision-Making Uncertainty at University College London, was stressing the danger of not having any doubts about what lies ahead: "Short-term it can work but eventually it leads over a cliff — a divided state."

Instead, investors should adopt an "integrated state" where they recognize there's uncertainty and investigate it, he said. They should assess the upsides and downsides of what could happen, and turn their decisions into "monitored experiments."

Lucking out

The academic advisor to a new HSBC report titled "Seizing Uncertainty" also argued that long-term investing success is a product of luck, not skill.

"One of the things to realize is that no one is repeatedly successful at investing more than can be expected by chance – although of course each period some do better or worse than others, and once you have done well, you may be better placed informationally," Tuckett said.

That applies to even the best investors like Warren Buffett, he told BI. He was nodding to the efficient markets hypothesis, which proposes "markets are more or less efficient," meaning "money doesn't lie around on the street."

Tuckett also noted the advent of algorithmic trading means "even a successful strategy can be copied fast and then cease to work."

Buffett has disputed that hypothesis for years. He once told a guest at a dinner party that if markets didn't make mistakes, he couldn't have become rich by finding bargains. Buffett accepted that markets are largely efficient, but he argued that inefficiencies sometimes crop up when human psychology subverts rationality.

"No. I don't agree," Tuckett told BI. "Inefficiencies emerge from radical uncertainty and managing it in a divided state. This is not the same as not being rational. If things are uncertain – we just don't know.

"Never let anyone who claims to be rational manage your money," he added.

Bumper Berkshire growth

Tuckett is certainly in the minority in thinking that Buffett's track record is comparable to flipping a coin and getting heads a bunch of times in a row.

Berkshire Hathaway's stock price has soared by over 4 million % since Buffett took charge in 1965. It compounded at 19.8% annually from that year through 2022, crushing the S&P 500's 9.9% growth rate over the same period, filings show.

Buffett has acknowledged the role of luck in his career, and it's clear that his position and reputation give him access to superior information and deals on better terms than almost anyone else in the world. But few would deny his investing acumen has been key to beating the market over the course of a long career.