5 ms·

I don't know whether you're right or not (that this particular fund is just a lucky survivor), but I don't like this argument. The classification of anyone tha

by splike 12y ago

I don't know whether you're right or not (that this particular fund is just a lucky survivor), but I don't like this argument. The classification of anyone that beats the market as a lucky unicorn is logically impermeable. If you accept the argument, then no matter who says they're beating the market, you'll be able to dismiss them without further thought. There needs to be a better argument, one that allows for the hypothetical fund that does manage to do something intelligent and beat the market. I find that this style of logically impermeable arguments crop up quite often when dealing with peoples belief structures. Here yours is that the stock market cannot be beaten, which may or may not be true. A useful question to ask in these situations is; Suppose that your belief is wrong, what evidence do you imagine might prove that it is in fact wrong? When you can answer that question, you'll have a more concrete argument for why this fund is indeed just a lucky survivor.

richardwhiuk 12y ago
The obvious rebuttal is to argue that there is a pattern to picking unicorns, and then argue that a current investor will beat the market this year, and then use the same argument next year. Note, being a unicorn isn't necessarily a sinker for an argument, it just can't be your only defence (i.e. gravity is the unicorn of theories about why things fall :) )
UnGravitas 12y ago
The argument isn't that anyone who beats the market is a lucky unicorn, it's that you can't tell if they're a lucky unicorn or not. Beliefs about beating the market aren't really relevant, the argument would be the same if we were evaluating a cancer treatment which only one person had taken.
- nabla9 12y ago
  You and splike both made good arguments. I just want to point out that it's possible to pick out winners better than random quess if they have advantage over others. Case in point: Warren Buffet. He is good investor who has beaten the S&P 500 decade after decade. But he is not beating the market because he makes series of good decisions. He beats the market because he has structured his business so that he has several advantages that others don't. The heart of his empire is his insurance companies. They create steady stream of cash even in the bad times when company valuations are low. Buffet don't have to loan money when he finds good investment or sell his other assets when he finds good investment. This already gives him severals percentage points advantage over others and that advantage compounds over decades. Also, he is in the position where he don't have to play martingale strategy [1] to please investors, because he and his friends own so many shares in the company (he is not in the payroll, he is in the charge). [1] The real cause of the financial crisis - An MIT Blackjack Team perspective by Semyon Dukach http://semyondukach.blogspot.com/2009/01/real-cause-of-financial-crisis.html http://semyondukach.blogspot.com/2009/01/real-cause-of-finan...
nerfhammer 12y ago
Maybe the question to ask is, how many similar "unicorns" were there last year? At any given time, what is the failure rate of people who look exactly like Ab Nicholas at that point in time?
deleted 12y ago
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throwawaymsft 12y ago
I agree with the flaws in this argument. Imagine Deep Blue beats Kasparov 40 games in a row. "Oh, this computer is getting lucky, it doesn't really have a strategy. This is the unicorn computer that is beating our best player." If the manager picked a single stock 40 years ago and that outperformed the market, that would be a unicorn. If the manager actively managed the fund for 40 years, buying and selling several times a year based on market conditions, and beat the market (the "best we have"), I'd say the strategy was sound. You can always cop out and claim talent is luck (Steve Jobs was "lucky" at picking products, etc.).
- jordanthoms 12y ago
  The problem with this argument, though, is that it's highly likely that if you have 10000 monkeys randomly picking stocks for 40 years, one or more of them will do really well. But it doesn't mean they'll do better than the average for the next 40 years. So, yes it's possible that this guy is doing something clever or has some advantage that means he will continue to beat the market. It's also possible it's just that he got lucky, and the other 9,999 people who pursued strategies and didn't get lucky are forgotten about.
  - throwawaymsft 12y ago
    Think of it like a drug trial: the control is the stock market, the drug is your strategy. If (somehow) beating the market was a 50-50 chance (which is like saying a randomly written chess algorithm has a 50-50 chance of beating Kasparov), the chance of 40 years of gains is 1/2^40, which is less than 1 in a trillion. I'd say that's sufficient evidence to reject the null hypothesis, that the drug is no better than placebo. Just because we don't understand the mechanism doesn't make it chance.
    - gonvaled 12y ago
      I do no get this. How is the chance of gains less than 1 in a trillion? This is not an all-or-nothing bet: outperforming the market by a very tiny margin also qualifies him for the title. So you do not really need 1 trillion managers to get this 1 lucky manager. Much less will suffice - maybe even a couple thousands, which are easily active on the market all the time. So, he very well could be the lucky monkey.
NhanH 12y ago
The actual argument that I know of rely on statistical test being the way to determine and not just a simple classification that anyone who beats the market is lucky. Roughly speaking, if it's possible to beat the market, then when comparing between the result distribution we have of actual result, against a hypothetical distribution where investor was using coin toss to invest, those two have to be different. The conclusion comes from people saying that those two looks the same. Now, actually make the test and choosing all the variable in question is NOT a simple task, and definitely is a hard problem.
derf_ 12y ago
The way to prove someone is not a lucky coin-flipper is to identify them before they flip the coins (or, at the very least, by some attribute that was observable before they flipped the coins). For example, "took a class from Ben Graham in 1951" [1] might be such an observable criteria. [1] http://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984.pdf http://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984....

by splike 12y ago

richardwhiuk 12y ago

The obvious rebuttal is to argue that there is a pattern to picking unicorns, and then argue that a current investor will beat the market this year, and then use the same argument next year. Note, being a unicorn isn't necessarily a sinker for an argument, it just can't be your only defence (i.e. gravity is the unicorn of theories about why things fall :) )

UnGravitas 12y ago

The argument isn't that anyone who beats the market is a lucky unicorn, it's that you can't tell if they're a lucky unicorn or not. Beliefs about beating the market aren't really relevant, the argument would be the same if we were evaluating a cancer treatment which only one person had taken.

nabla9 12y ago
You and splike both made good arguments. I just want to point out that it's possible to pick out winners better than random quess if they have advantage over others. Case in point: Warren Buffet. He is good investor who has beaten the S&P 500 decade after decade. But he is not beating the market because he makes series of good decisions. He beats the market because he has structured his business so that he has several advantages that others don't. The heart of his empire is his insurance companies. They create steady stream of cash even in the bad times when company valuations are low. Buffet don't have to loan money when he finds good investment or sell his other assets when he finds good investment. This already gives him severals percentage points advantage over others and that advantage compounds over decades. Also, he is in the position where he don't have to play martingale strategy [1] to please investors, because he and his friends own so many shares in the company (he is not in the payroll, he is in the charge). [1] The real cause of the financial crisis - An MIT Blackjack Team perspective by Semyon Dukach http://semyondukach.blogspot.com/2009/01/real-cause-of-financial-crisis.html http://semyondukach.blogspot.com/2009/01/real-cause-of-finan...

nerfhammer 12y ago

Maybe the question to ask is, how many similar "unicorns" were there last year? At any given time, what is the failure rate of people who look exactly like Ab Nicholas at that point in time?

deleted 12y ago

[deleted]

throwawaymsft 12y ago

I agree with the flaws in this argument. Imagine Deep Blue beats Kasparov 40 games in a row. "Oh, this computer is getting lucky, it doesn't really have a strategy. This is the unicorn computer that is beating our best player." If the manager picked a single stock 40 years ago and that outperformed the market, that would be a unicorn. If the manager actively managed the fund for 40 years, buying and selling several times a year based on market conditions, and beat the market (the "best we have"), I'd say the strategy was sound. You can always cop out and claim talent is luck (Steve Jobs was "lucky" at picking products, etc.).

jordanthoms 12y ago
The problem with this argument, though, is that it's highly likely that if you have 10000 monkeys randomly picking stocks for 40 years, one or more of them will do really well. But it doesn't mean they'll do better than the average for the next 40 years. So, yes it's possible that this guy is doing something clever or has some advantage that means he will continue to beat the market. It's also possible it's just that he got lucky, and the other 9,999 people who pursued strategies and didn't get lucky are forgotten about.
- throwawaymsft 12y ago
  Think of it like a drug trial: the control is the stock market, the drug is your strategy. If (somehow) beating the market was a 50-50 chance (which is like saying a randomly written chess algorithm has a 50-50 chance of beating Kasparov), the chance of 40 years of gains is 1/2^40, which is less than 1 in a trillion. I'd say that's sufficient evidence to reject the null hypothesis, that the drug is no better than placebo. Just because we don't understand the mechanism doesn't make it chance.
  - gonvaled 12y ago
    I do no get this. How is the chance of gains less than 1 in a trillion? This is not an all-or-nothing bet: outperforming the market by a very tiny margin also qualifies him for the title. So you do not really need 1 trillion managers to get this 1 lucky manager. Much less will suffice - maybe even a couple thousands, which are easily active on the market all the time. So, he very well could be the lucky monkey.

NhanH 12y ago

The actual argument that I know of rely on statistical test being the way to determine and not just a simple classification that anyone who beats the market is lucky. Roughly speaking, if it's possible to beat the market, then when comparing between the result distribution we have of actual result, against a hypothetical distribution where investor was using coin toss to invest, those two have to be different. The conclusion comes from people saying that those two looks the same. Now, actually make the test and choosing all the variable in question is NOT a simple task, and definitely is a hard problem.

derf_ 12y ago

The way to prove someone is not a lucky coin-flipper is to identify them before they flip the coins (or, at the very least, by some attribute that was observable before they flipped the coins). For example, "took a class from Ben Graham in 1951" [1] might be such an observable criteria. [1] http://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984.pdf http://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984....