We would be able to ask them what they think about the future for stock prices, for property prices, what they think of the Bond markets and their share tip for the year.
We could then directly compare this with the experts who regularly bombard us with their expertise and/or who are charged with managing our money on our behalf and we could then ascertain once and for all who has the best pedigree.
I have long argued that 90% plus of the people commenting on money matters and managing money on behalf of others have no right to do so, other than they are doing so which seems to have come about by their being in the right place at the right time.
In my guide The Great Fund Management Myth (coming soon) I showed clear evidence that 97% of all funds actually destroy value for investors. I believe the 3% which demonstrate clear value for investors probably have achieved what is known in probability as survivorship bias. This means that they have achieved that slice of luck that means they have outperformed the general market on every available measurement across all time periods by dint of pure luck.
This is just about averages and chance. For example if 100 of us in a room toss a coin then 50 of us are likely (on the average) to have heads, 50 of us tails. If all those throwing heads stay in the room and we toss the coin again, 25 of us will have heads, 25 tails (again, on average). If the heads remain, 12.5 will throw heads, 12.5 tails. Next time 6.25 heads, 6.25 tails and then 3.125 heads and 3.125 tails. So after a series of 5 coin tosses, 3 people will probably still be in the room. These three people can then lay claim to some sort of expertise in tossing coins and can write articles on “how I stayed in the room through landing heads” and next time you want someone to achieve a head in a coin tossing competition, they are your man. Actually of course they are not, they have no more expectation of landing a head than any of the other 99 people who were in the room at the start.
Survivorship counts for a lot in investment terms and the only difference between a group of monkeys and a group of professional experts is that the monkeys, who would probably achieve similar results if given the chance, would not be able to sell you on their successes or tell you how wonderful they are.
Is there anyone in the UK Fund management industry who clearly has demonstrated an expertise and a track record which definitely does not come from survivorship? NO!
