Tag Archives: luck versus skill

Review of ‘Thinking, Fast and Slow’ by Daniel Kahneman

I put off reading this book because I thought that I would already know most of its contents.  I was wrong.  Really wrong. There is a review with a more statistical orientation on the Burns Statistics site.  Here the focus is towards economics.  The topics that  most directly impinge on fund management are: prospect theory versus … Continue reading

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Investment performance: measurement versus calculation

I recently had a frustrating — for both parties — conversation involving performance measurement. I said “measurement”.  My dialogist heard “calculation” but wanted “measurement”.  We went dizzy in the chase. Calculation and Measurement What’s the difference? A calculation is what computers do. A measurement is an assessment.  It is a comparison with an ulterior motive. I’m … Continue reading

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Performance measurement is about decisions

The return of a hypothetical fund was 17.9% in 2010.  We want to know if that is good or bad. The benchmark method The assets in the portfolio are constituents of the S&P 500, so we can compare our fund return to the return of the index. Figure 1: 2010 returns of: the fund and … Continue reading

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A tangle of luck and skill

Some concrete steps for discerning skill from luck. The Harvard Business Review published a guest blog post by Michael Mauboussin called Untangling Skill and Luck. That post is really a brief introduction to a longer piece which is also called Untangling Skill and Luck. The punchline is that there are ways of estimating the proportion … Continue reading

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Dicing with the market

How to visualize luck when looking for skill. Quantitative Finance just published the paper Dicing with the market: randomized procedures for evaluation of mutual funds by Francesco Lisi.  Here is the working paper version. This paper explains one way of using random portfolios to do performance measurement of investment funds.  It includes performance measures on … Continue reading

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