I got this from Francis Chou’s latest fund letter for the first half ended June 30, 2016.
Some twenty years ago, the following test was developed to ascertain whether or not an individual could make it as a value investor. As you are well aware, investing is not done in silos. You have to take all pertinent information and check how it is interrelated.
There are 4 test questions. Answer them in sequence. Don’t miss one. Please do not cheat.
1. How do you put a giraffe into a refrigerator?
2. How do you put an elephant into a refrigerator?
Did you say, open the refrigerator, put in the elephant, and close the refrigerator? Wrong Answer.
Lion King Test
3. The Lion King is hosting an Animal Conference. All the animals attend … except one. Which animal does not attend?
Okay, even if you did not answer the first three questions correctly, you still have one more chance to show whether you have any innate qualities to be a value investor. If you get it wrong, you could be deluding yourself and may have to seek counseling.
4. There is a river you must cross but it is used by crocodiles, and you do not have a boat. How do you manage it?
When this test was administered to fourth graders, most of them were able to answer some of the questions but 90% of adults could not answer even a single question. This shows what Modern Portfolio Theory can do to investors.