Was reading the Sunday Times today when several “Unit Trust Providers” and “Actively Managed Funds” peddling their services through ads caught my eye. Whenever I do read those eye-candies, I can’t help but recall the miserable track record of active fund managers.
But how is it then possible that their ads, their validated track records and their promises still look so attractive? They are not allowed to “lie”, right?
Simply because of the Survivorship Bias. That logical error of concentrating on things that “survived” some process and ignoring those that did not because they are no longer visible.
In the financial world, survivorship bias refers to the phenomena whereby the past records of existing mutual funds (aka unit trusts) are examined to determine various trends. The problem lies in the fact that we are only shown the past records of currently existing funds—funds which ceased existence in the past are not …