People believe successful investors are survivorship bias cannot succeed

survivorship bias

The reason for this post

When I wrote about Buffett a few days ago, I noticed that many people, regardless of Wall Street and many friends around me, attribute Buffett’s investment success to the Survivorship Bias. This view includes two things:

  • No one denies that Buffett is the most successful investor in history: he has more than 70 years of continuous investment experience and an investment position of hundreds of billions; these two prerequisites for judging a successful investor are all ranked first in history, the fact is hard to be denied.
  • Those who attribute Buffett’s success in investing to survivorship bias, most of their investment results are lackluster, even appalling. Just because he works on Wall Street means he is a great investor, of course no, and it has absolutely nothing to do with investment performance. The latest report from S&P Dow Jones Indices (ticker: SPGI) shows that in 2021, 79% of US stock fund managers performed worse than the performance of the US stock market; the typical representative of these fund managers is Wall Street.

What’s wrong?

Survivorship bias isn’t entirely unfounded, but it’s the people citing it, the context in which it applies, and the misinterpretation. Its definition is:

Survivorship bias, survival bias or immortal time bias is the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility. This can lead to some false conclusions in several different ways. It is a form of selection bias.

The problem is that the most successful investors are not selection bias, because the fact is that they have better investment performance than the vast majority of investors, that is, they are “generated from a sample of all investors”, of course not by a deliberately selected minority (selection bias).

“Most people only see the investment performance of Buffett and a few extremely successful investors, but they ignore the efforts behind their investment performance to achieve such investment performance” This is what most people do not see, or is deliberately simplified, That’s the problem.

If the majority view on this matter is right

Let’s assume that the majority of people are right on this (attributing Buffett’s success in investing to survivorship bias), here’s what will happen:

  • It means that no one can have as good investment returns as Buffett and others, Buffett is just very lucky. This is the main logic behind many Wall Street or financial education who despise Buffett, who think Buffett is nothing more than that lucky monkey who shoots a target.
  • If Wall Street or the financial education despise Buffett’s main logic and think that Buffett is the monkey who shoots the mark with extra luck. Then we have to find the monkey who has been shooting and flying the standard for more than 70 years in a row. Of course, there are still people who hold this view and insist that Buffett is a very lucky monkey who has been shooting and flying the standard for more than 70 years in a row.

The logic is totally unreasonable

Personally, I certainly believe that survivorship bias is rooted, and it can even be used to show that what many people think of as some common sense is actually untenable. For example, we often see in the newspapers that someone who lived to be 130 years old and smoked when he was a child, the media began to expand the explanation that smoking does not reduce people’s life expectancy.

We all know the fault of this sentence now, because the sample taken is only one person, and it is not representative at all. The samples taken by modern medicine are all human beings. Of course, what we should believe is that the samples are modern medicine of all human beings — Smoking will shorten your life.

But Buffett has been proved successful, and the benchmark for the comparison sampling is “all” investors.

Implied meaning

In the event that most people attribute Buffett’s investment success to survivorship bias, what I’ve actually observed is this:

  • Most people don’t want to make long-term investments like Buffett.
  • Don’t want to put in research and effort on investment (this part is invisible, making investors easy to be fooled and misled by the media or so-called investment experts to mislead the wrong investment concept); that is, lazy, just looking for shortcuts and dreams to get rich overnight or look for the touted stocks.
  • Oversimplifying things: Investing is simple, but not easy: but most people want a simplified operation and idea; many people always think that successful investors have insiders information , and buy stocks before it, or hidden secrets.
  • The display of the evil side of human nature: jealous of successful people and denying the efforts of others.
survivorship bias
Credit: Wikimedia

Closing words

Others say what they say. On the road of investment, the opinions of the mass are usually wrong.

If you, in your mind, believe Buffett’s success is a survivorship bias, you’ll never succeed in investment.

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