Money Map: A Professional's Guide to Investing by John Nicholas

Author:John Nicholas [Nicholas, John]
Language: eng
Format: epub
Published: 2021-12-07T22:00:00+00:00

LUCK OR SKILL

There have to be winners, right? Can’t I find at least a few investment managers who regularly do better than the Base Case after their fees and costs? There are some investors who do better than the Base Case over time. Remarkably few, however, and the odds of you identifying them in advance are low. Additionally, you cannot really tell within a reasonable time period if their past outperformance was due to skill or luck.

For example, ten people play a game of heads or tails. After five flips of the coin, one person, Susan, remains. She picked heads or tails correctly each time. Would you say Susan was skilled at picking heads or tails? No. Similarly, among stock pickers, one person out of ten might have performed much better than the others, having picked a basket of stocks that outperformed the Base Case five years in a row. Do you know whether this was due to skill or chance? No. Would you bet your retirement savings that they will correctly predict the next five flips? No, unless you believe in clairvoyance.

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