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Arg... Assume the entire population of fund managers, which is smaller than the population of the entire "market", has a mean return of 15%. Further, assume th

by beambot 13y ago

Arg... Assume the entire population of fund managers, which is smaller than the population of the entire "market", has a mean return of 15%. Further, assume the market as a whole (superset including fund managers) has a mean return of 10%. Under those conditions... in a sampling of 100 "typical fund managers", more than half would still produce higher returns than the market. You made an implicit assumption, which I believe is probably correct, that fund managers as a population are an unbiased sampling of the entire market -- ie. that their returns are the same as the market (or worse) -- but provided no evidence to back it up.

lutusp 13y ago
> Further, assume the market as a whole (superset including fund managers) has a mean return of 10%. Under those conditions... in a sampling of 100 "typical fund managers", more than half would still produce higher returns than the market. No, because we're comparing manager performance with market indices, like the DJIA, both of which include overall market growth. The "average market" is measured by market indices, each of which tries to characterize a typical buy & hold portfolio. Thus, market indices ascend with overall market growth. That's what an average manager has to beat. And the WSJ Dartboard Contest, which compares market indices with submitted manager performances, proves that managers cannot beat the market, even if their fees aren't included in the tallies. > Under those conditions... in a sampling of 100 "typical fund managers", more than half would still produce higher returns than the market. No, just half. not more, not less. Both the market indices and the managers would ride the ascending average value of the market as a whole. The only difference would be the theory being tested -- that some managers have special abilities that would give them an edge. > You made an implicit assumption, which I believe is probably correct, that fund managers as a population are an unbiased sampling of the entire market -- ie. that their returns are the same as the market (or worse) -- but provided no evidence to back it up. I keep proving my point with examples like the Dartboard Contest, and people keep ignoring the evidence. Don't you understand that submitters to the Dartboard Contest had every incentive to display their best performance -- a success would assure them of fame and wealth. But none of them could do it, over a period of years.

by beambot 13y ago

lutusp 13y ago

> Further, assume the market as a whole (superset including fund managers) has a mean return of 10%. Under those conditions... in a sampling of 100 "typical fund managers", more than half would still produce higher returns than the market. No, because we're comparing manager performance with market indices, like the DJIA, both of which include overall market growth. The "average market" is measured by market indices, each of which tries to characterize a typical buy & hold portfolio. Thus, market indices ascend with overall market growth. That's what an average manager has to beat. And the WSJ Dartboard Contest, which compares market indices with submitted manager performances, proves that managers cannot beat the market, even if their fees aren't included in the tallies. > Under those conditions... in a sampling of 100 "typical fund managers", more than half would still produce higher returns than the market. No, just half. not more, not less. Both the market indices and the managers would ride the ascending average value of the market as a whole. The only difference would be the theory being tested -- that some managers have special abilities that would give them an edge. > You made an implicit assumption, which I believe is probably correct, that fund managers as a population are an unbiased sampling of the entire market -- ie. that their returns are the same as the market (or worse) -- but provided no evidence to back it up. I keep proving my point with examples like the Dartboard Contest, and people keep ignoring the evidence. Don't you understand that submitters to the Dartboard Contest had every incentive to display their best performance -- a success would assure them of fame and wealth. But none of them could do it, over a period of years.