Performance And Paradox

Investment performance arises from a thoroughly confusing mixture of skill and chance. Imagine for a moment that investment is simply a coin-tossing exercise. Start with 32 fund managers and half will be ahead of the average after a year. After two years, eight will have shown two successive years of superior performance. After five years, the odds are that just one will be left with a record of beating the average (or the index) every year. He will boast of his track record and promote himself heavily.

But his luck may be just about to run out.

In Barcelona this week, Arnold Wood, who runs the US investment firm Martingale Asset Management, gave the hypothetical example of a so-called