Harvard Magazine is one of the more interesting magazines in the world of liberal fund-raising machines. The May-June issue has a nice article on Emerson’s enduring legacy; the typical business-bashing article by Derek Bok on pragmatism in universities; pioneers in the air, segregation in the south; and long-legged evolution, sandwiched in among the blatant appeals for funds. But in addition to my former partner’s book on early college admissions, this issue contains an article on one of E's favorite subjects: stars, bulls and bears.
The article by Randoph Cohen, Joshua Coval and Lubus Pastor compares the decisions a fund manager makes with decisions made by all other managers. They show that if a fund holds the same stocks as other funds with a history of doing well it is likely to perform 1 percentage point a year better in future than random.
The authors adopt the typical Harvard humble-pie-but-truly-supercilious air so common in Cambridge and Omaha: “This paper started out with my asking why no one had done this…. If it doesn’t eventually seem obvious, then it probably isn’t quite right…. Meanwhile, they are working on making their system available to the public.”
Well, this is one of the worst ideas I’ve ever seen. Backward-looking retromiganticidal to the nth degree. The best in the past don’t do better in future. No adjusted survival bias or consideration of ever-changing cycles or multiple comparisons. The effect is weak even with these deficiencies. So Harvard. Such an infertile soil.
Victor Niederhoffer