So that's where our money went
The Drunkard's Walk: How Randomness Rules Our Lives
By Leonard Mlodinow ( Pantheon Books, $27.95)
In 2005, portfolio manager Bill Miller of the Legg MasonValue Trust Fund celebrated his 15th year of beating the Standard & Poor's 500 stock index. Miller was hailed as a genius. Experts said the odds of his beating the market for so long were 372,529 to 1. But was he a genius or just extremely lucky? Leonard Mlodinow says the question is not about Miller as an individual. How likely would it be for one of the more than 1000 fund managers to beat the S&P 500 for 15 years out of a 40-year period? Just by the odds of random picks, the likelihood is 3 out of 4.
Mlodinow also looks at the performance of the top 800 mutual funds from 1991-1995. He then compares their performance from 1996-2000. Surprisingly, the results appear nearly random. A fund manager who looks like a genius over the first period looks like an idiot the next. If you've been wondering where your retirement savings went, this book might (or might not) console you.
The Drunkard's Walk takes a tour through the major developments of statistics: the bell curve, Pascal's wager, and confidence intervals (how much data you need to prove a pattern like global warming is not a random variation). The book is named after the random movement of particles suspended in liquid, called Brownian motion or the drunkard's walk. Mlodinow describes the people involved in each development and the practical questions they were trying to solve. In entertaining prose, he describes their fates: how some were rewarded with prestige and high position, and others were caught in shifting power structures, called before the Inquisition or killed by the French guillotine.
One of Mlodinow's stories is about a New York bartender and struggling actor who decided to go to Los Angeles for the 1984 Olympics. Since he was there anyway, he did an audition for Moonlighting and won his first big role. If not for this lucky break, we might not know of Bruce Willis. But Mlodinow wonders about the other talented actors still working their bartending jobs. Yes, hard work and persistence matter, but success is also about being in the right place at the right time.
Mlodinow's final story is about a twist of fate that shaped his family profoundly. It is an exhortation not only to appreciate the success and good luck that we meet, but also to give thanks for the bad luck we have escaped without even knowing it.
Susan Di Biase lives in Jacksonville.
