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Survivorship Bias: Why Most Investors Should Own Index Funds


  • There are many good reasons to have index funds in a portfolio, but this is the worst article I have ever read from the indexing crowd. Too many logical fallacies, confused train of thought, regurgitation of indexing talking points with no signs of comprehension of any of them.

    Skip this one.
  • Reply to @cman: Let other decide if it's worth reading.
  • Reply to @cman: Cman, I agree with your point of view on this article. The writing is horrible. Too many references that have no relation to the headline. Barrons is a good reference point for fund investors but I stopped reading this blog a while back. Mr. Conway is trying too hard to be cute with his writing.
  • Excellent article. I can't imagine an argument against survivorship bias. How many one year wonders fade into underperformance and then go away. RIP. I confess that I enjoy "betting" a smaller stake searching for the "big winner" (e.g., GPEOX) but my serious money is in low-cost, tax efficient index funds. I liked the article when I saw it in Barrons. Thanks for posting it.
  • Reply to @Jim0445: The arguments against survivorship bias as a proof of index superiority are the two glaring mistakes the article makes: first, just because any fund shuts down doesn't mean you lose your money; second just because only 22% of extant funds in 1997 both survived and beat a particular index doesn't mean that investors couldn't identify those funds. It also assumes the fund industry hasn't changed since then and that volatility doesn't matter. I watched a M* round table not too long ago where one of them gave some data on fund selection. "Turns out investors are actually pretty good at identifying good funds" was his conclusion. We're mostly just bad at using them to maximize value.
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