Luck or Skill? Paulson & Co. edition

I've just read on the FT that John Paulson (who made billions betting on falling US housing market prices in 2008) has warned of 25% redemptions in his $30bi AUM fund, following losses of more than 40% so far this year.

My MSc. dissertation was on whether technical analysis can generate abnormal returns or it is onlu due to "luck"- i.e. out of many possible combinations you are bound to find one that will have excellent results.

I usually use Warren Buffet as an example during my classes on market efficiency but maybe Paulson will be interesting as well. Maybe his profits back in 2008 were simply luck and shouldn't be expected to persist in the future?

The Importance of Being Honest

This is a great article by E. Derman and Paul Wilmott on  how we should be careful with our models. Here are their suggestions at the end,

• I will remember that I didn't make the world and that it doesn't satisfy my equations.
• Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.
• I will never sacrifice reality for elegance without explaining why I have done so. Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.
• I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension. 

It is so easy to get lost in the mathematics of models that we often see papers completely out of touch with reality...

MBA Rankings

I love rankings and this post here, by the guy who created the Busines Week one, analyzes the big MBA rankings out there. IESE makes #1 in the Economist ranking, but this seems to be the worst ranked of all.

To be honest, I think IESE has one of the best but not the best MBAs in the world. We have some top-notch departments and a few characteristics that makes us unique in the world.

That said, I believe that the writer has the usual U.S. bias in his analysis, downplaying European schools a bit.

My two cents on this is that the top 3 things are:

1. Salary 2-3 years after graduation (PPP-adjusted)
2. Student diversity (US schools could do better here, IMHO)
3. Faculty commitment (tough to measure but it makes a world of a difference to students)

Any opinions?