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They're not normally distributed. Almost any investment strategy has heavier tails than normal. So exceeding some number of sigma (assuming a normal distributio
by tlb 6y ago
They're not normally distributed. Almost any investment strategy has heavier tails than normal. So exceeding some number of sigma (assuming a normal distribution) does not imply an implausible amount of luck.
For example, a single investment in Amazon 20 years ago would outperform the market by many sigma. But the probability of an average fool having picked that particular stock 20 years ago was not 10^-(some large number). At least 1 in 100 fools would have picked Amazon.
- fractionalhare 6y agoThat's a fair counterargument, but I don't think it holds up. I'm talking about a portfolio rather than a single asset. Technically we would want to model that using a log-normal distribution, but I think the example suffices. Can you think of a realistic example where someone would accidentally hold a dynamic portfolio that exhibits outperforming returns over 20 years?