Cocktail parties and Bottomless pits

From One Up on Wall Street, here's Peter Lynch's Cocktail Party theory:

Employed Capital

At the right price, any profit producing security could give me an initial rate of return of 40%.  The security could be a bond or it could be an equity.  Let's use CocaCola as an example, as its earnings growth is quite stable, and has been for some time.  So, there is a price as which Coca Cola will give me an initial rate of return of 40%. I chose 40% because that's highly likely to be the "once in a lifetime" buying opportunity.

Fooled by Regression to the Mean

I've just finished reading Fooled by Randomness by Nassim Taleb (Great book BTW).  There are many interesting topics covered in the book, but I'd like to pick on the one topic that Taleb doesn't quite get right - that of Regression to the Mean.

Taleb writes:

This applies to the height of individuals or the size of dogs.  In the latter case, consider that two average sized parents produce a large litter.  The largest dogs, if they diverge too much from the average, will tend to produce offspring of the smaller size than themselves, and vice versa.  This "reversion" for the large outliers is what has been observed in history and explained as regression to the mean.  Note that the larger the deviation, the more important the effect.

I've long thought it obvious that "regression to the mean" of populations was a myth.  After all, on an evolutionary time scale, the "tree of life" expands (into a tree) rather than reaches equilibrium, at a mean.  If it were true, we'd all be the same size, and we are not, therefore it isn't true.

On gold producing no income or dividends...

What's all this nonsense about gold not paying a dividend?

Firstly, let's compare apples with apples, because it doesn't make sense to compare the dividends received from "cash that is lent out" with the dividends received from "gold that is not lent out".  If, instead, we compare the "not lent out" assets, then neither cash nor gold will pay any dividends.  If you had put both a lump of gold and a suitcase of cash under your bed 50 years ago, neither would have paid out dividends, and the contents under your bed would not have changed - but only one of the two would have preserved its purchasing power.

Now, let's consider the "lent out" scenario.  Obviously, cash would only be lent out for a reason, and that reason would be interest payable on the capital - generally as or including dividends.  As for gold, does anyone really think that gold that is lent out would not be done so under similar, if not identical arrangements, and not pay dividends, or that a greater quantity would not be returned than was lent out. 

If there is anybody that believes this, please lend me your gold at 0%?