August 2025
IN THIS ISSUE
Inflation is rising
Capable Assistant or Stock Picker?
Icahn’s shorts
Winner’s Game or Loser’s Game?
I remember my high school tennis coach urging us to not beat ourselves. Unforced errors, like trying to hit flashy winners that sail out of bounds, were causing us to lose tennis matches that we should have won.
I like Charles Ellis’s distinction between “Winner’s games” and “Loser’s games”. Winner’s games are won by actively exerting effort to win, whereas Loser’s games are won by making fewer mistakes than your opponent.
Here is Ellis in his 1975 paper “The Loser’s Game”:
Simon Ramo identified the crucial difference between a Winner's Game and a Loser's Game in his excellent book on playing strategy, ExtraordinaryTennis for the Ordinary Tennis Player. Over a period of many years, he observed that tennis was not one game but two. One game of tennis is played by professionals and a very few gifted amateurs; the other is played by all the rest of us.
Although players in both games use the same equipment, dress, rules and scoring, and conform to the same etiquette and customs, the basic natures of their two games are almost entirely different. After extensive scientific and statistical analysis, Dr. Ramo summed it up this way: Professionals win points; amateurs lose points. Professional tennis players stroke the ball with strong,well aimed shots, through long and often exciting rallies, until one player is able to drive the ball just beyond the reach of his opponent. Errors are seldom made by these splendid players.
Expert tennis is what I call a Winner's Game because the ultimate outcome is determined by the actions of the winner. Victory is due to winning more points than the opponent wins - not, as we shall see in a moment, simply to getting a higher score than the opponent, but getting that higher score by winning points.
Amateur tennis, Ramo found, is almost entirely different. Brilliant shots, long and exciting rallies, and seemingly miraculous recoveries are few and far between. On the other hand, the ball is fairly often hit into the net or out of bounds, and double faults at service are not uncommon. The amateur duffer seldom beats his opponent, but he beats himself all the time. The victor in this game of tennis gets a higher score than the opponent, but he gets that higher score because his opponent is losing even more points.
As a scientist and statistician, Dr. Ramo gathered data to test his hypothesis. And he did it in a very clever way. Instead of keeping conventional game scores - "Love," "Fifteen All,""Thirty-Fifteen," etc. - Ramo simply counted points won versus points lost. And here is what he found. In expert tennis, about 80 per cent of the points are won; in amateur tennis, about 80 percent of the points are lost. In other words, professional tennis is a Winner's Game - the final outcome is determined by the activities of the winner - and amateur tennis is a Loser's Game - the final outcome is determined by the activities of the loser. The two games are, in their fundamental characteristic, not at all the same. They are opposites.
So, is Active Investing a Winner’s Game or a Loser’s Game? Well, given that passive indexing reliably outperforms active stock-picking over long time horizons, there’s a strong argument that Active Investors are beating themselves in a Loser’s Game.
Hikaru and TipRanks
I like investing and chess, so I read with interest that Hikaru Nakamura (American chess Super Grandmaster) and TipRanks are now partners:
Nakamura’s success on the chessboard requires him to rapidly absorb loads of information, scan his options, and make decisions. The same holds true with making smart investment decisions, which aligns completely with TipRanks’ vision of giving deep thought and preparation prior to acting.
“TipRanks offers a wide variety of insights on thousands of stocks and equities, helping me to think strategically about all of my investments,” explains Nakamura. “Just like in chess, beating the market depends on making wise, fully informed decisions.”
Sounds like what Nassim Taleb calls the “Ludic Fallacy”, the “misuse of games to model real-life situations”.
So I wondered, what would Taleb say? I did not actually ask Taleb, but I asked ChatGPT - its conclusion is below, and here is its full response:
[Taleb] would probably chuckle at the appeal of the point, but caution against overconfidence. He would say that this partnership risks conflating chess (a well-defined game) with real financial markets (a domain of uncertainties and surprises), and thus might mislead audiences to believe that stock picking is more deterministic, modelable, or skill-transferrable than it really is.
It’s a creative sponsorship for TipRanks to be sure. But the only thing I will be following from Hikaru are his chess games.
ONE MORE THING…
Inflation is rising. Watch this space. Core inflation rose to 2.9% in July, highest since February
Capable Assistant or Stock Picker? Klarman says do not use AI to pick stocks. AI is a ‘capable assistant’, not a stock picker, says Blaupost's Klarman
Icahn’s shorts. Well, I’m not surprised. Billionaire Carl Icahn’s Hedge Fund Sees Six Straight Years of Losses After Failed Short Bets: Report
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