Rolf Dobelli on the illusion of skill

In certain areas, skill plays no role whatsoever.  In his book Thinking, Fast and Slow, [Daniel] Kahneman describes his visit to an asset management company.  To brief him, they sent him a spreadsheet showing the performance of each investment adviser over the past eight years.  From this, a ranking was assigned to each: number 1, 2, 3, and so on in descending order.  This was compiled every year.  Kahneman quickly calculated the relationship between the years' rankings.  Specifically, he calculated the correlation of the rankings between year 1 and year 2, between year 1 and year 3, year 1 and year 5, up until year 7 and year 8.  The result: pure coincidence.  Sometimes the adviser was at the very top and sometimes the very bottom.  If an adviser had a great year, this was neither bolstered by previous years nor carried into subsequent years.  The correlation was zero.  And yet the consultants pocketed bonuses for their performance.  In other words, the company was rewarding luck rather than skill.

 ~ Rolf Dobelli, The Art of Thinking Clearly, p. 283

 

Dylan Grice on good investment returns

To make good returns in the long run, you need to get to the long run as the law of the jungle dictates that survival takes priority over reproduction.

~ Dylan Grice

James Freeman on poor performance at Calpers due to political activism

There is no such thing as a free lunch.  Activists who think they can use public companies to pursue political agendas without endangering shareholder returns are indulging in a fantasy.  Disappointing results at a giant government pension fund cannot all be tied to political agendas, but the retired workers who rely on Calpers have every right to demand that fund managers adopt a singular focus on maximizing returns. 

[...]

Let’s hope Calpers finally gets it, and a good fresh start would include a determination to urge portfolio companies to simply pursue profits, not politics.  For years, the big fund has been fairly active in pursuing the latter, despite early red flags.

~ James Freeman, "An ESG Champion Stumbles," WSJ, September 28, 2022

Warren Buffett on how size will limit performance

We face another obstacle: In a finite world, high growth rates must self-destruct. If the base from which the growth is taking place is tiny, this law may not operate for a time. But when the base balloons, the party ends: A high growth rate eventually forges its own anchor. 

~ Warren Buffett, Berkshire Hathaway 1989 Annual Report, March 2, 1990