Good post.Mr Clarinet wrote:It turns out FPL managers aren't the only ones who think about skill vs luck. There was a 'personal finance' programme on the radio last night, with a discussion that included consideration of the relative merits of tracker funds and actively managed funds (the point being that the latter have higher fees in order to pay for the active management, but then you - supposedly - benefit in terms of performance - as financial returns - from the active management). So your choice should depend on the (future) performance of the active fund manager, which you have to predict from past performance. Thus the issue was raised as to how much data was needed to be able to determine whether an active fund manager's observed results were skilful or lucky; and the answer, apparently, is at least 22-years-worth.
I've seen analysis beofre that showed there was no significant difference in the performance of the average managed fund and an index tracker. And when you took the management fees in to account the trackers (which are cheaper) did significantly better.
You do wonder about these so called star fund managers who've out-performed the market for a few years running. Funny to hear you'd need 22 years worth of data to assess the statistical significance....maybe we should reconvene this conversation in 15 or so years time