RE: Investing

From: gts (gts_2000@yahoo.com)
Date: Wed Jun 11 2003 - 19:04:15 MDT

  • Next message: Olga Bourlin: "Re: Investing"

    Gary Miller wrote:

    > This system claims to have averaged 17.7% annual return since 1973.

    I don't doubt it.

    If you look at 100 randomly devised trading systems, about 50 of them will
    have outperformed the market over a given time period. Among those 50 that
    outperformed, one will have returned something like 17.7% annually. That
    doesn't it make it any less random than the other 99 systems.

    The same kind of analysis applies to mutual funds. Some funds have shown
    superior returns over long periods. However statistical analysis shows that
    funds that outperform on a risk-adjusted basis in year 1 are no more likely
    to outperform in year 2 than funds that underperformed in year 1.

    Furthermore, approximately 3/4 of mutual funds underperform the S+P 500 each
    year. These funds are managed by the top guns of the industry, yet on
    average they can't beat the market after transaction costs.

    Market skill is a myth.

    -gts



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