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Taleb Was Right. We’re Still Fooled by Randomness

FYI: In his 2001 book “Fooled by Randomness,” author and fund manager Nassim Nicholas Taleb argued that chance plays a largely unacknowledged role in success, particularly in the finance industry. A new study of the returns generated by fund managers suggests that even the minority able to beat their benchmarks are lucky rather than good — and maybe not even that lucky.

Analysts at S&P Global examined the returns of more than 2,400 investors based in the U.S. Unsurprisingly to anyone who has followed the active-versus-passive debate in recent years, less than a third were able to beat their benchmarks in the three years to September 2015 on an annualized basis and once fees are taken into account.


  • Yes, I agree a lot of random luck is interpreted as success or evidence of skill in the case of managers. On the flip side, skilled managers often do not get credit because they are unlucky or they have been given rains of managing money in an asset group that is not doing well (well that is also partly luck).

    But the manager gets paid in any case while investor is the one that needs to bear the consequences
  • One thing that the study shows (the one in the link) is that there is some momentum effect in periods less than a year. And it is more likely to be momentum of the asset class/sector so those managers that had a larger allocation to that asset class did better. But momentum strategies generate a lot of churn and is not particularly suitable for taxable accounts. Consider following a momentum strategy in a retirement account (be careful some custodies have frequent trading restrictions, you can get banned so investigate before)
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