Taleb Was Right. We’re Still Fooled by Randomness
You know you shouldn’t chase “hot hands” in the fund management industry. This study says you really, really shouldn’t.
Not the source of your underperformance.
Photographer: Paul Ellis/AFP/Getty Images
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.