There were a number of interesting comments on this chapter, specifically the exercise involved in predicting the next Arab-Israeli war using probability theory. The complaint was that this is an example of a problem called the Gambler’s Fallacy, and also that simply because events happen every ten years, it does not mean that there is a one-in-ten chance of them happening every year. That means that I obviously don’t know anything about probability or statistics.
Well, actually I do. Remember, the reason for this entire exercise is for Carl to gain control of his money in a brokerage account in order to actively trade stocks and commodities to get returns far higher than possible otherwise. He knows the future! A passbook account would be insane. Better to come up with a slick line of horseshit and predict a war in 1973, than try and beg for a chance to play with the money Mom wants to hold for him.
Another group of people commented that the investment strategy suggested by the first broker was the best one for the average investor. It may well have been. The thing to remember is that, because of his knowledge of the future - which he can’t tell anyone - Carl is not an average investor. For him, an active strategy in specific equities and commodities will work the best. What can’t be questioned is the first broker is making more than the investors, by churning accounts and keeping the investors in high priced proprietary funds.