Sign In
SHARE
Survivorship Bias Datapoint of the Day
Veryan Allen has many bones to pick with John Bogle, most of which seem to be some variation on the basic theme that hedge funds are a better investment than index funds. Interestingly, he never takes issue with Bogle's main point, which is that index funds are a much better investment than mutual funds. But he does pull out one very interesting statistic:
If you had bought the ORIGINAL 500 components and held on with no adjustments whatsoever you would have outperformed the "real" S&P 500 even though only 86 names survived the past 50 years.
It's true that big indices are, almost by definition, overweight winners. The Intels and Microsofts of this world have to comprise a large part of the S&P 500 and the Dow, otherwise those indices simply wouldn't reflect the reality of the markets. But you'd be wrong, it would seem, if you concluded that their returns have been boosted as a result. The Dow drops Bethlehem Steel and adds Microsoft? Great – but remember that it adds Microsoft only after that company has already posted the vast majority of its gains.
Maybe a really long-term buy-and-hold investor should just buy 10 shares apiece of each stock in the Dow Jones Industrial Average, and hold on to them all. I wonder how the returns would compare to those of the Dow itself.
Loading...
Thank you for registering as a Portfolio.com Insider. Your comment has been added.
Create Your Public Profile
- The Times' Rorshach Geithner Story
- Apr 27 2009 9:26AM EDT
- Sinking Animal Spirits
- Apr 27 2009 8:45AM EDT
- Counter-cyclical Urban Policy
- Apr 26 2009 10:00AM EDT
- Be Your Own Counterfeiter
- Apr 26 2009 9:36AM EDT
- Being Tim Geithner
- Apr 25 2009 12:37PM EDT
- Notes From a Press Conference Naif
- Apr 25 2009 9:41AM EDT
- What Good is the News?
- Apr 25 2009 8:32AM EDT
- Stressful Enough
- Apr 24 2009 2:29PM EDT
- Not Regretting the Pound
- Apr 24 2009 1:09PM EDT
- Introducing the New Ford Squeeze
- Apr 24 2009 9:47AM EDT
- Non-Economic Questions of the Day
- Apr 24 2009 9:12AM EDT
- The Stress Test Blind Alley
- Apr 24 2009 8:36AM EDT
- Happy Hour
- Apr 23 2009 9:40PM EDT
- Recovery Without Rebalancing
- Apr 23 2009 6:13PM EDT
- The Shape of Your Recession
- Apr 23 2009 5:11PM EDT
Archive
Categories
Links
- Email Ryan Avent
- Econospeak
- Financial Crookery
- The Epicurean Dealmaker
- Naked Capitalism
- Alphaville
- Marginal Revolution
- The Panelist
- FP Passport
- Overcoming Bias
- Andrew Leonard
- Barry Ritholtz
- Brad Setser
- Carbon Tax Center
- Calculated Risk
- Greg Mankiw
- Free Exchange
- Dean Baker
- Alexander Campbell
- Kash Mansori
- The Bayesian Heresy
- A Fistful of Euros
- John Quiggin
- Michael Mandel
- Lance Knobel
- Mark Thoma
- Dan Gross
- Curbed
- Streetsblog
- Chris Anderson
- Deal Journal
- MarketBeat
- DealBook
- DealBreaker
- Carl Bialik
- Michelle Leder
- Brad DeLong
- Ultimi Barbarorum
