Paul Samuelson: the world’s greatest investors

Born in 1915, Paul Samuelson got his degree in economics from the University of Chicago, followed by a PhD in economics from Harvard in 1941. He worked at the Massachusetts Institute of Technology from 1940 onward, becoming a full professor in 1947. He went on to win the Nobel Prize for Economics in 1970, while his introductory economics textbook, first written in 1948, has gone through 19 editions. Samuelson would play a key role in founding Commodities Corporation in 1969. He died in 2009 at the age of 94.

What was his strategy?

Publicly Samuelson was one of the key people involved in the development of the efficient market hypothesis, which argued that markets reflected all publicly known information, which means that it's impossible for fund managers to beat the market. He therefore suggested that someone should set up a low-cost fund that just tracked the market instead. Commodities Corporation, which was set up by Helmut Weymar, hired top computer scientists and traders to discover patterns in the market, which they would then exploit.

Did it work?

Samuelson's 1974 article about indexing, "Challenge to Judgement", persuaded Jack Bogle to set up the first retail index fund two years later. Thanks to Samuelson and Bogle, a third of all mutual fund money is now managed passively. Commodities Corporation rose in value by more than 100 times in its first 20 years. It was acquired by Goldman Sachs in 1997.

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What was his best trade?

At the same time as he put $125,000 into Commodities Corp., Samuelson invested a lot of money in Warren Buffett's Berkshire Hathaway. This proved to be a good investment since between 1970 and 2009 each $1,000 invested in its stock would have become $2.12m, an annual return of more than 20%. As a result, Samuelson made more money from investing than he did from his writing or his work as an economist.

What lessons does he have for investors?

Samuelson's public support of indexing contradicts his more private support of hedge funds and active management. But what this contradiction points to is that not even the strongest supporters of the efficient market hypothesis are fully convinced that it always quite works like that in the real world that it is at times possible to beat the market. This suggests that, even if you haven't got the time to trade or pick stocks yourself, you can still do well if you find someone who can.