Timeline for How can I determine if my stock picking performance was due to luck or due to skill?
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| Sep 16, 2020 at 12:02 | comment | added | Fattie | The misunderstanding is that the second sentence is not an "absolute statement". (Like saying .... "Porsches are the best!") The second sentence is a definition. The literal definition of not-luck is "so far in to the end of the bell curve, that, we now describe that as not-luck". And note that you have to put a number on that in a specific conversation. This is why engineers talk in terms of 3-sigma, 4-sigma etc. | |
| Jun 13, 2020 at 19:44 | comment | added | JBentley | Even you yourself posted a comment on another answer claiming that Warren Buffet's success doesn't count because of selection bias. Yet if we believed your answer here, then by definition his success is "not-luck". | |
| Jun 13, 2020 at 19:43 | comment | added | JBentley | @Fattie The problem is you said nothing about "probably was not caused by..." or "how unlikely...". Instead you said "the answer is extremely simple" (followed by an absolute statement), and then you stated the opposite scenario as "the definition". No matter how you spin it, that is simply wrong from a mathematical perspective. | |
| Jun 12, 2020 at 21:26 | review | Low quality posts | |||
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| Jun 12, 2020 at 19:29 | comment | added | Fattie | @user3067860 , your understanding of stats is not really correct. If there are 1000 trillion people, then and as you say, a "tiny" number (say, merely a million) will be in the "outperformed the market, year after year" slot of the bell curve. The literal meaning of / understanding of "probably was not caused by luck" is simply "how unlikely it is". A 10 sigmna event is a 10 sigma event. Doesn't matter the base size. | |
| Jun 12, 2020 at 16:28 | comment | added | user3067860 | The problem is that there are many, many people tossing many, many coins. The point of the bell curve is that if you sample enough data, you fill in the whole thing...including those bits way out on the end. If you put a large number of ball bearings through a bean machine/Galton board ( en.wikipedia.org/wiki/Bean_machine ), are the ones that end up on the far sides "skilled" or "lucky"? | |
| Jun 12, 2020 at 14:40 | comment | added | Fattie | Hence, your comment is wrong: It is entirely possible to outperform the market by rolling dice to determine your stock picks. It's completely possible to do that once, but it's incredibly unlikely to do that many many times in a row. This is, simply, the definition of "was it luck". If you toss heads 3 times in a row - just luck. If you toss heads 40 times in a row, it's incredibly likely that it is caused by a coin problem, not luck. | |
| Jun 12, 2020 at 14:38 | history | edited | Fattie | CC BY-SA 4.0 |
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| Jun 12, 2020 at 14:38 | comment | added | Fattie | Hi @JBentley , you missed the many times. If you roll lucky dice many times in a row, you're on the extreme edge of a statistical bell curve. | |
| Jun 12, 2020 at 14:14 | comment | added | JBentley | -1. This answer is wrong. It is entirely possible to outperform the market by rolling dice to determine your stock picks. Your mathematical expectation with such a strategy is to equal the market return, but a large proportion of people (~50%) who follow this strategy will end up with an average return which outperforms the market, just as a large proportion (~50%) will underperform. Both outcomes would be entirely based on luck. | |
| Jun 12, 2020 at 14:03 | history | edited | Fattie | CC BY-SA 4.0 |
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| Jun 12, 2020 at 13:09 | history | edited | Fattie | CC BY-SA 4.0 |
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| Jun 12, 2020 at 13:01 | history | answered | Fattie | CC BY-SA 4.0 |