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.