Achieve a flipping heads-up
December 5, 2009
I have stolen the concept for this week's article unashamedly from Warren Buffet and have given it an Australian tilt.
He expounded the US version in a speech in 1984 commemorating the 50th anniversary of the book Security Analysis by Benjamin Graham and David Dodd, the bible of value investing.
He called his speech: "The Superinvestors of Graham-and-Doddsville". I'd call it "Orang-utans". Let me explain.
Imagine, if you will, a daily coin flipping contest conducted across the whole of the Australian nation. Everyone's in. On the first day 21 million Australians flip a $1 coin. The rules are that if you flip heads you stay in, if you flip tails you give your dollar to the ones who flipped heads.
Every day the losers drop out and the $21 million pool of money is shared among fewer and fewer people. After day one there should be about 10.5 million people left in the game and each will have won a dollar. This process goes on and every day the value of being in the game grows and the stakes rise for those left in.
Assuming the honesty of the losers, after 10 days of flipping there will be about 20,500 people left in the game and each will have won more than $1000.
At this point there will be 20,500 people walking around Australia feeling pretty chuffed with themselves and their ability to turn $1 into $1000 in 10 days. Pretty impressive.
And no doubt some of them would begin getting a bit of mileage out of their position, dropping it into the conversation at nightclubs, expounding their theories on how to throw heads at dinner parties and generally making hay. The media would be stirring and the water coolers abuzz with talk of the local hero still in the game.
Five days of flipping later there would be 640 people left, each worth $330,000. Another five days later and there would be just 20 people left.
By this stage, each flipper would have thrown heads 20 times on the trot and each would have cracked the magic sum of just more than $1 million each. From $1 to millionaire in 20 days. Wow.
Stop the contest and Australia would be swarming over the 20, the flipping "elite". The "smartest" flippers in the nation. And they would make global headlines. And they would write books.
"Flip for Success". "20 Top Flips". "The Psychology of Flipping". "Flipping for Dummies". "Rich Flipper Poor Flipper". "The Way of the Flipper". "Common Flips and Uncommon Profits". "The Intelligent Flipper". "Mastering Flipping". "The Flipping Way" and the most recent record busting bestseller of them all, "Coin Flipping Secrets" by Marcus "The Big Flipper" Padley.
Others would arrange motivational seminars on how to own a flipping massive portfolio in Queensland starting with just one dollar.
The investment banks would launch capital guaranteed leveraged flipping products that charge you a hidden 16 per cent before you make a dollar. And we would buy them.
We would trade online with E*Flip and CommFlip for a fraction of the cost of a full service flipper and the unsuspecting would trade highly leveraged "Contracts for Flippers". And we'd buy 10 CD Flipping Courses plus steak knives in three easy payments from the late night infomercial.
The irrefutable proof of the benefits of flipping would be the 20 people left in and their results. Flipping can clearly transform your life. Of course, the results would have been the same had 21 million orang-utans been doing the flipping, but then orang-utans aren't very good at marketing.
Footnote: The stockmarket is not the same as flipping coins and if you think it is it's perhaps a reflection, not on the market, but on the way you approach it. If you need proof of that look no further than Warren Flipping Buffett and his uncanny knack of flipping heads.