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You (or Siegel) may suffer survivorship bias. Yes, the US stock market has performed well. But what about early Russian stocks, German stocks, French stocks? I'

by HSO 16y ago

You (or Siegel) may suffer survivorship bias. Yes, the US stock market has performed well. But what about early Russian stocks, German stocks, French stocks? I'd venture a wild guess that investors got pretty much wiped out between 1917, say, and 1945? Also, the chances are high that you can find some time grid for which "every single decade" will show whatever you want it to show. For example, between 2000 and 2010, US aggregate stock market performance is... roundabout zero?

nostrademons 16y ago
I upvoted you for insightful analysis, but I think survivorship bias might be appropriate here. If the economy & political system changes the way it did in Russia, Germany, and France, it's basically moot where you've put your assets. You'll be wiped out either way; the important thing then is that you survive and can rebuild afterwards. As one of my mentors once told me, "Optimize for the case where we aren't fucked, because if we are, there's nothing we can do about it." He was talking about software architecture and startups, but it applies to finance as well.
- _delirium 16y ago
  In some cases everything is equally bad, but not in others. In France, for example, the stock market was wiped out, but lots of other assets survived the war, especially property (land ownership wasn't generally interfered with), and portable valuables like gold and jewelry. So if you were picking places to put your money in 1935, there are definite winners and losers--- buying land was a good option.
  - vorg 16y ago
    Diversify across geographies, e.g. always hold positions in America, Europe, and China.
- HSO 16y ago
  At first, I thought we had a misunderstanding but now that I see your point, I have to disagree. Survivorship bias basically is a sampling error and, in this case, leads you to underestimate the risk of your investments, both of which are never a good thing. Moreover, in almost all cases, it's a tad fatalistic to say "there's nothing we can do about it". I mean, maybe if the world goes under, but anything short of that, I'd like to think there's always sth I can do about it (even if that's just trading one bias for another... ;)
  - nostrademons 16y ago
    Sampling error is when your sample doesn't match the properties of the population that you're trying to infer for. It's not sampling error if you actually meant to study only the population that you're looking at. I'm saying that when it comes to asset performance, "Countries with a stable political system and market economy" is a better sample than "all countries", at least when you're investing domestically. The reason for this is that if your home country undergoes political turmoil, you'll need to special-case that anyway. It's very likely that your assets will be seized by force; it's fairly likely that you will be too, and potentially lose your life. Your priority is staying alive and getting out of the country, not preserving $X million in wealth. It's highly unlikely that the country you emigrate to will be able to recognize any claims you might have had on assets in a country in turmoil. The best you can do is to get out and have sufficient friends & skills to rebuild your life.
    - HSO 16y ago
      > I'm saying that when it comes to asset performance, "Countries with a stable political system and market economy" is a better sample than "all countries", That's like saying "I'll buy only stocks that go up". You didn't know, in 1900, that the 20th century would be America's.
      - nostrademons 16y ago
        That's fair enough. I suppose you might have some clues, like "Get the hell out of Germany when Hitler came to power", but yeah, you can't predict the future.

by HSO 16y ago

nostrademons 16y ago

I upvoted you for insightful analysis, but I think survivorship bias might be appropriate here. If the economy & political system changes the way it did in Russia, Germany, and France, it's basically moot where you've put your assets. You'll be wiped out either way; the important thing then is that you survive and can rebuild afterwards. As one of my mentors once told me, "Optimize for the case where we aren't fucked, because if we are, there's nothing we can do about it." He was talking about software architecture and startups, but it applies to finance as well.

_delirium 16y ago
In some cases everything is equally bad, but not in others. In France, for example, the stock market was wiped out, but lots of other assets survived the war, especially property (land ownership wasn't generally interfered with), and portable valuables like gold and jewelry. So if you were picking places to put your money in 1935, there are definite winners and losers--- buying land was a good option.
- vorg 16y ago
  Diversify across geographies, e.g. always hold positions in America, Europe, and China.
HSO 16y ago
At first, I thought we had a misunderstanding but now that I see your point, I have to disagree. Survivorship bias basically is a sampling error and, in this case, leads you to underestimate the risk of your investments, both of which are never a good thing. Moreover, in almost all cases, it's a tad fatalistic to say "there's nothing we can do about it". I mean, maybe if the world goes under, but anything short of that, I'd like to think there's always sth I can do about it (even if that's just trading one bias for another... ;)
- nostrademons 16y ago
  Sampling error is when your sample doesn't match the properties of the population that you're trying to infer for. It's not sampling error if you actually meant to study only the population that you're looking at. I'm saying that when it comes to asset performance, "Countries with a stable political system and market economy" is a better sample than "all countries", at least when you're investing domestically. The reason for this is that if your home country undergoes political turmoil, you'll need to special-case that anyway. It's very likely that your assets will be seized by force; it's fairly likely that you will be too, and potentially lose your life. Your priority is staying alive and getting out of the country, not preserving $X million in wealth. It's highly unlikely that the country you emigrate to will be able to recognize any claims you might have had on assets in a country in turmoil. The best you can do is to get out and have sufficient friends & skills to rebuild your life.
  - HSO 16y ago
    > I'm saying that when it comes to asset performance, "Countries with a stable political system and market economy" is a better sample than "all countries", That's like saying "I'll buy only stocks that go up". You didn't know, in 1900, that the 20th century would be America's.
    - nostrademons 16y ago
      That's fair enough. I suppose you might have some clues, like "Get the hell out of Germany when Hitler came to power", but yeah, you can't predict the future.