Bill Miller: What's luck got to do with it?

Question: Right. Who's Puggy Pearson, and why should anybody care?

Answer: Well, the late Puggy Pearson was a professional gambler, lived in Las Vegas, had a 5th grade education, but nonetheless became legendary in poker, and really in other gambling circles, because of his undeniable skill at a game that involves a high degree of chance.

And he won the World Series of Poker, I think in 1973. He also told me he actually won it one other time, but they awarded it to somebody else, because they didn't want him to win it twice. (Laughter) Back in the early years.

Question: In the old days.

Answer: I didn't know whether to believe him or not, but that's what he said. But in any case, he summed up the skills required for successful poker in a pithy way. And those skills, in my view, are also the skills necessary for successful investment.

Somebody once asked Bill Ruane [the late manager of the legendary Sequoia Fund], and I happened to be in the audience that day, "How do you learn about investing?"

And Bill said, "Well, if you read Ben Graham's Security Analysis and The Intelligent Investor you'll be well versed in it. And then if you read Warren Buffett's shareholder letters and understand them too, you'll know everything there is to know about investing. And you will become a successful investor."

And I think Bill was right, but it takes a lot of time to do that. Puggy Pearson made it a little pithier when he said, his line was, "There ain't only three things to gambling. Knowing the 60/40 end of a proposition, money management, and knowing yourself."

And if you translate that into investing, knowing the 60/40 end of a proposition means knowing when you have some competitive advantage over somebody else. And you don't bet, you don't gamble, you don't invest, unless you have some competitive advantage. I'll come back to what that means in a second.

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