Market Timing???

[cute fuzzy bunny]

Hey Al...quit disclosing my secret strategy. I'm gonna try to get people to pay me for that stuff!

Since you've blown my secrets, I guess I'll have to go to the next plan, which involves sharks with frickin laser beams on their heads.

[Nords]

Quote:

Originally Posted by TromboneAl Let's say you have seven people who have done extremely well timing the market. How can you tell, objectively, that they weren't just lucky? That is, how do you know that they weren't just the seven monkeys who happened to throw their darts in the right place?

We used to count the number of mutual fund managers and then figure out how many years it'd take for a coin-flipper (exceed the benchmark or lag it) to rise to the top. If there are 16,000 fund managers then a lucky coin-flipper would take 14 years (2 to the 14th power) to beat out his contemporaries. If he did it on the 15th then he'd be skilled, not lucky.

From that has risen a general perception that if an investor can beat the market (whatever the benchmark is) for 20 years then they're no longer a coin-flipper. 2^^20 is only a million, though, so I guess being truly unique on the planet and skilled would require about 33 years (1 out of 8.5 billion).

But I'm not a statistician. Anyone have a better explanation?

[chinaco]

Quote:

Originally Posted by TromboneAl Let's say you have seven people who have done extremely well timing the market. How can you tell, objectively, that they weren't just lucky? That is, how do you know that they weren't just the seven monkeys who happened to throw their darts in the right place?

HEY Al. I resent resemble that remark!!! And I object strongly with the use of the word lucky in your description. It is very misleading. I demand a retraction. You need to replace the word lucky with unlucky.

And, by the way... only one of the monkeys got lucky. The other six lost their bananas.

[bosco]

Quote:

Originally Posted by Nords We used to count the number of mutual fund managers and then figure out how many years it'd take for a coin-flipper (exceed the benchmark or lag it) to rise to the top. If there are 16,000 fund managers then a lucky coin-flipper would take 14 years (2 to the 14th power) to beat out his contemporaries. If he did it on the 15th then he'd be skilled, not lucky. From that has risen a general perception that if an investor can beat the market (whatever the benchmark is) for 20 years then they're no longer a coin-flipper. 2^^20 is only a million, though, so I guess being truly unique on the planet and skilled would require about 33 years (1 out of 8.5 billion). But I'm not a statistician. Anyone have a better explanation?

I'll take the manager in your methodology that washed out at year 2 because he underperformed the market by 1%, but beat the market by 3% every other year....according to your test, he's not skilled. But he would have made me a LOT of money! (now I just need to identify who he is)