Perry E. Metzger (
Fri, 23 May 1997 10:49:32 -0400 (EDT)

> From: James Rogers <>
> >This is the question: is your performance truly out of line with the
> >markets? Absolute returns aren't very interesting -- returns relative
> >to market, and the statistical likelyhood of getting there by
> >accident, are far more interesting.
> >
> >Also, remember -- higher return often is a sign of higher risk.
> My returns are almost always significantly above the market. To date I
> have returned almost 50% on my stock investments this year.

You take a five month return as being the least bit significant? Take
ten or fifteen random small portfolios and one of them is going to do
better than 15% in five months. Five month returns aren't even worth

I highly recommend that people read Victor Neiderhoffer's
autobiography "The Education of a Speculator". Victor is one of the
richest men I know. He got that way by futures trading. As he notes in
his book, his performance is enough standard deviations away from the
norm that it is spectacularly unlikely given the size of the
population that he could have gotten where he has by chance.

Victor is amazingly savage about all sorts of things -- he uses
statistics as a vicious weapon. I think his conclusion is more or less
the same as my far less informed opinion -- that smart, hard working
people can earn more than the market, but that the vast majority of
opinion about the market is spectacularly foolish, and that it isn't
easy to earn above average returns. His lancing of most investment
"advisors" is amazingly good reading.

Now, James makes fun of earning the "mere" 10% or 12% or whatever that
an index fund will get you. Well, I'd say that there is nothing wrong
with earning less than the maximum you possibly could. The real key is
to save and invest with a reasonable degree of confidence. Earning 50%
a year is nice if you can manage it, but there is nothing wrong --
nothing wrong -- with earning a "mere" 12%. 12% will turn even a
modest savings rate into a spectacularly comfortable retirement. I see
no reason for embarassment at such things.

I also see no embarassment in a decision like Max made to buy Coca
Cola. If it gets him a nice return over the long run, thats fine. If
it doesn't do that spectacularly, thats fine too. THAT Max is
investing is almost more important than in what -- provided we aren't
talking about really stupid investments like savings bonds.