[NAFEX] Off topic, investmnent return

William C. Garthright billg at inebraska.com
Sat Feb 16 13:52:54 EST 2008

> Funds that return 12 % annually over 15 and 20 years aren't theory, 
> but recorded fact.

Er, yes, but so what? It is very, very easy to discover winning 
investment strategies after-the-fact. But unfortunately - for those of 
us without time machines - this has little to do with how they'll 
necessarily perform in the future.

After all, if you take a roomful of monkeys and let them throw darts at 
the Wall Street Journal to choose investments, you'll likely end up with 
the standard bell-curve of returns. The 'portfolio' of most monkeys will 
be very average, with a few doing much better and a few doing much 
worse. But you wouldn't give your money to those especially 'skilled' 
monkeys and expect their out-performance to continue, I hope. Most 
likely, their future results would return to the mean.

Also, investment returns for the past 20 years or so have been amazingly 
good. I hope it continues, but there's a good chance we'll eventually 
return to the mean (in which case, the next 20 years could be amazingly 
poor). You just don't know. I'm certain that some investment strategy 
will work exceptionally well going forward, but no one will really know 
that ahead of time. Only after-the-fact will that be clear.

Generally speaking, a high return means a high risk. There are, indeed, 
ways to mitigate that. But methods that worked in the past might not 
work in the future, now that everyone has identified them. The future is 
inherently unpredictable. I'm not trying to discourage NAFEX from the 
idea of a lifetime membership. Not at all. But play it very safe with 
the expected returns. You might expect to beat inflation (not a 
guarantee with a declining dollar and $100/barrel oil), but I CERTAINLY 
wouldn't count on 12%!


Democracy is not about majority rule; it is about minority rights. If 
there is no culture of not simply tolerating minorities, but actually 
treating them with equal rights, real democracy can't take root. - 
Thomas L. Friedman

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