Everything of interest here is a consequence of the author's decision to use annual rate of return as his figure of merit. Simplified example: you have a pool

Everything of interest here is a consequence of the author's decision to use annual rate of return as his figure of merit. Simplified example: you have a pool of investment opportunities where with probability 0.01 you gain $100 and with probability 0.99 you lose $1. So your expected gain from making a bunch of these investments is a gain of 1c per investment. If you make a million of them then with very high probability you gain something very close to $10k in total, on your $1M investment, a 1% gain. Now, suppose each of these investment opportunities takes 10 years to do whatever it does. Then (to first order) your return rate is 0.1% per year, more or less all the time; so your average return rate is about 0.1% per year. So far, so good. Now suppose that you can only make one investment. Then your annual return rate is 99^(1/10)-1, 1% of the time, and -1 the rest of the time. Key point: 99^(1/10)-1 is about 0.6, which is a lot less than 99/10. So your average return rate is now absolutely wretched. So, have we just discovered something interesting about the real costs and benefits of high-variance investments, or merely blinded ourselves with science? The latter, I think. I'll try to explain why. Why use averages to summarize things, in the first place? Because they describe what usually happens in the aggregate. When they fail to, or when that isn't what you care about, averaging is unlikely to tell you what you want to know. So, does our averaged return rate tell us anything useful about what happens in the aggregate? Why, no. Suppose A and B both invest $1; A loses his money and B doubles his. And suppose each of these things happens over 10 years. Then their return rates are -1 and +0.072 respectively; their average return rate is extremely negative; but A and B collectively neither gained nor lost any money. Similarly, if you make a whole lot of investments then the average of your return rates is not the same as your overall return rate. (That's exactly why the author's calculation produces the results it does.) Here's another way of looking at it, which I actually prefer. There's nothing magical about annual return rates. But the author's curve would look completely different if he plotted six-monthly return rates (it would be worse [EDITED TO ADD: than the author's annualized curve) for smaller numbers of investments) or five-yearly return rates (it would be flat and show a positive result for any number of investments). So what the curve illustrates is not a fundamental truth about investment, it's an artefact of preferring to look at return rates over a time period that differs from the length over which the investments make whatever return they do.