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posted by Fnord666 on Sunday June 23 2019, @01:50PM   Printer-friendly
from the getting-lucky dept.

Submitted via IRC for Bytram

Why brilliant people lose their touch

It hasn't been a great couple of years for Neil Woodford — and it has been just as miserable for the people who have entrusted money to his investment funds. Mr Woodford was probably the most celebrated stockpicker in the UK, but recently his funds have been languishing. Piling on the woes, Morningstar, a rating agency, downgraded his flagship fund this week. What has happened to the darling of the investment community?

Mr Woodford isn't the only star to fade. Fund manager Anthony Bolton is an obvious parallel. He enjoyed almost three decades of superb performance, retired, then returned to blemish his record with a few miserable years investing in China.

The story of triumph followed by disappointment is not limited to investment. Think of Arsène Wenger, for a few years the most brilliant manager in football, and then an eternal runner-up. Or all the bands who have struggled with "difficult second-album syndrome".

There is even a legend that athletes who appear on the cover of Sports Illustrated are doomed to suffer the "SI jinx". The rise to the top is followed by the fall from grace.

There are three broad explanations for these tragic career arcs. Our instinct is to blame the individual. We assume that Mr Woodford lost his touch and that Mr Wenger stopped learning. That is possible. Successful people can become overconfident, or isolated from feedback, or lazy.

But an alternative possibility is that the world changed. Mr Wenger's emphasis on diet, data and the global transfer market was once unusual, but when his rivals noticed and began to follow suit, his edge disappeared. In the investment world — and indeed, the business world more broadly — good ideas don't work forever because the competition catches on.

The third explanation is the least satisfying: that luck was at play. This seems implausible at first glance. Could luck alone have brought Mr Wenger three Premier League titles? Or that Mr Bolton was simply lucky for 28 years? Do we really live in such an impossibly random universe?


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  • (Score: 2, Insightful) by Anonymous Coward on Sunday June 23 2019, @04:19PM (1 child)

    by Anonymous Coward on Sunday June 23 2019, @04:19PM (#859091)

    He doesn't regress to the general mean, Buffett regresses to his own.

    Since he is well-aware of his limits (he's the big "invest within your sphere of understanding" guy, he makes accurate estimations of his understanding a priority) and he's rather competent (not genius, but smart and incredible recall) and has resources (ie. he pays the right people to figure out the right things) he regresses to a market beating mean.

    Regression to the mean in the context of the individual is to the mean of their influences.

    You wouldn't for example expect a low-performing investor who chooses based on "how dynamic the company name sounds" (or on negatives, like "uptake of juicero machines in workplace staff rooms") to regress to the S&P.

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  • (Score: 1, Interesting) by Anonymous Coward on Sunday June 23 2019, @08:03PM

    by Anonymous Coward on Sunday June 23 2019, @08:03PM (#859132)

    He does one thing anyone can do (i do and it pays well).
    Buy under valued companies that pay dividends that are not borrowing money to do so.

    He has the entirety of 2 insurance companies float to gamble with (which is his job). So he can even out his odds by doing what I just said above *alot*. Then doing this. If you have 10 million dollars and invest in 10 companies 1 million each. 95% of companies fail 5% do very well. Your odds are pretty good you will make money to cover the losers. He has the actuarial tables to back up his bets too. Insurance companies are very good at odds making because they know how to assign risk.

    For average investors (like me). I do not have enough float or information to play that sort of bet. So index funds are better for me. Which is why he recommends them.

    When the next recession hits (it will). He will be there to pounce on bargains. I will follow those bets. I have 3x'd my money I used doing so.

    The next recession will be interesting. I recently heard something interesting from a very smart banker. 'there is no liquidity in the bond market' That means if it freezes again the banks and companies can not borrow money quickly to cover. So the stock market will go down in that case. They will turn to investors like Buffet to cover.