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"Multi-decade returns of 20% and above are well documented." The few that exist might be documented (but please enlighten us on where), but if they are, it's m
by roel_v 13y ago
"Multi-decade returns of 20% and above are well documented."
The few that exist might be documented (but please enlighten us on where), but if they are, it's most likely because they are so rare.
"I personally invested in a fund 12 years ago which has returned a compound 21% pa return over that period, so I know that they definitely exist."
That's exactly what the GP says - of course there are, but how do you which ones will be, and know you didn't stumble into this one by chance? Your story might just be survivor bias. When I look at the funds my banks offer, there are some that offer 10%+ returns for the last years. Thing is though that they offer dozens of funds, all of which look equally likely in their prospects. How do I know which one to pick? Their yields are normally distributed, just as one would expect.
- brc 13y agoNo, you're getting it confused. For a start, the fund that I bought into advertised exactly what they expected (it is based on a computerised trading model, so they know what to expect if it worked). It is not 'chance' that I happened onto a fund - what we are talking about is random chance that anyone can have consistent above-market returns. Certainly it is possible for any one individual to have a chance occurence of a high return one year- the EMT would say that next year the chance is for a loss. When people or firms put together year on year of consistent returns above market, that is no longer chance.
- truthteller 13y agothere are a lot of investment funds out there. even if none possess any skill, it is possible for a few to produce extreme risk-adjusted performance simply by chance.
- brc 13y agoStill not getting the point here. - One individual or fund doing well in any particular year = random chance - One individual or fund doing well for a decade = chance is not a possible explanation Essentially the chance of getting a heads on a coin flip is a 50/50. If you get heads, it's a chance event. However, if you do 10,000 coin flips and end up with 8,000 heads, either the flipper or the coin have an edge in making heads turn up. The pattern shows that it is no longer a random 50:50 chance.
- PeterisP 13y agoIf a fund has 50% random chance of doing well in a particular year, then 1 of 1000 funds will do well for a whole decade purely from chance. There are thousands of funds, so existance of funds with 10/10 good years should expected even if they are purely random.
- roel_v 13y agoNo, you are not getting the point. When you do millions of 10000 coin flips, the chance that one of them will be 8000 heads is not 50:50. Look up 'birthday paradox'.