Self-Realisation

Past performance is not indicative of future results

This is clearly and demonstrably true of mutual funds. It’s easy to confirm.

And yet…

We are very uncomfortable with randomness. So the newspaper does a 12 page section of mutual funds, filled with articles and ads and charts, all touting past performance.

Superstition is what we call the belief in causation due to a mistaken correlation of unrelated data. A broken mirror doesn’t actually cause seven years of bad luck, and cheering in a certain way isn’t going to help the Yankees, sorry.

Of course, we don’t live in a completely random world. The scientific method and statistics make it more likely than ever that you can find trends that actually matter.

The hard part is accepting that the random things actually are unpredictable, and refusing to spend time or money guessing on what can’t be reliably guessed. It frees up a lot of time and resources to focus on the things that are actually worth measuring.

Reblogged from: here

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