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And how does this apply to modern investment funds who have to regularly provide client reports and make disclosures?

sangnoir 5y ago
Take 512 investment funds, in one year half of them make a profit, half of them will make losses. Drop the ones that had losses, the next year half will make profits, the other half will suffer losses. Repeat until one fund is left: "Invest in us - we are market experts who had no losses for the past 9 consecutive years!"
- bidirectional 5y ago
  Well yes, I understand that. The point is that your model predicts the current landscape of funds as being about as likely as pigs flying.
croes 5y ago
Because people don't know the performance of dart throwing monkeys https://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/ https://www.forbes.com/sites/rickferri/2012/12/20/any-monkey...
- bidirectional 5y ago
  That article explains that the outperformance was due to a broader economic trend of small cap companies outperforming weighted indices. They effectively baked in a known-to-win strategy from the start and then ran it in various slightly-randomised ways (and they're fully open about it!)
kennywinker 5y ago
You can invest in Apple stock in the early 90s because you are a savvy investor who sees the massive potential, or you can invest in them because the stock shows up at the top of an alphabetical list. Either way you're rich, and get called a brilliant investor, while all the people who invested in ZZCO because they picked the bottom of the alphabetical list, or some other similarly random choice, are bankrupt.
- bidirectional 5y ago
  Of course you can invest at random and it will sometimes work. But it does not explain the realities of the industry. Even just one of the top funds has an infinitesimally small chance of existing randomly, let alone a glut of them.
  - kennywinker 5y ago
    The impeccable track record of index funds suggests that "Even just one of the top funds has an infinitesimally small chance of existing randomly" is not actually correct.
    - bidirectional 5y ago
      Well index funds aren't 'the top funds', they're the benchmark against which the alpha of the top funds is measured. If we change the framing to over/underperforming the S&P500 I don't see how the argument changes. RenTec is up 66% per year since 1988, how could that possibly be random?
prepend 5y ago
One big early hit can keep paying off. And some funds have long lock-ins. In this case, they sold part of their tencent to buy this. Selling a little bit each year of a superstar early investment shows good earnings each year. I don’t know this fund at all, so they could be awesome for all I know. But saying “they are super smart for buying tencent” is not useful without lots of other info. Usually people who say that without extra evidence or mentioning survivor bias aren’t properly aware of what’s what.

Take 512 investment funds, in one year half of them make a profit, half of them will make losses. Drop the ones that had losses, the next year half will make profits, the other half will suffer losses. Repeat until one fund is left: "Invest in us - we are market experts who had no losses for the past 9 consecutive years!"

bidirectional 5y ago
Well yes, I understand that. The point is that your model predicts the current landscape of funds as being about as likely as pigs flying.

croes 5y ago

Because people don't know the performance of dart throwing monkeys https://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/ https://www.forbes.com/sites/rickferri/2012/12/20/any-monkey...

bidirectional 5y ago
That article explains that the outperformance was due to a broader economic trend of small cap companies outperforming weighted indices. They effectively baked in a known-to-win strategy from the start and then ran it in various slightly-randomised ways (and they're fully open about it!)

kennywinker 5y ago

You can invest in Apple stock in the early 90s because you are a savvy investor who sees the massive potential, or you can invest in them because the stock shows up at the top of an alphabetical list. Either way you're rich, and get called a brilliant investor, while all the people who invested in ZZCO because they picked the bottom of the alphabetical list, or some other similarly random choice, are bankrupt.

bidirectional 5y ago
Of course you can invest at random and it will sometimes work. But it does not explain the realities of the industry. Even just one of the top funds has an infinitesimally small chance of existing randomly, let alone a glut of them.
- kennywinker 5y ago
  The impeccable track record of index funds suggests that "Even just one of the top funds has an infinitesimally small chance of existing randomly" is not actually correct.
  - bidirectional 5y ago
    Well index funds aren't 'the top funds', they're the benchmark against which the alpha of the top funds is measured. If we change the framing to over/underperforming the S&P500 I don't see how the argument changes. RenTec is up 66% per year since 1988, how could that possibly be random?

prepend 5y ago

One big early hit can keep paying off. And some funds have long lock-ins. In this case, they sold part of their tencent to buy this. Selling a little bit each year of a superstar early investment shows good earnings each year. I don’t know this fund at all, so they could be awesome for all I know. But saying “they are super smart for buying tencent” is not useful without lots of other info. Usually people who say that without extra evidence or mentioning survivor bias aren’t properly aware of what’s what.