After reading about SuperForecasters, my friend Jonathan and I have begun to determine our our probabilities for various things many seem to disagree on. The scale of probabilities I use.
Active Management
The probability that …
- … an equity mutual fund will beat an appropriate benchmark over three years:
- While amateur investors believe it is likely, the research is nearly undisputable–unlikely.
- … an equity mutual fund will beat an appropriate benchmark over 10 years: highly improbable (~5%)
- … an intelligent, dedicated investor can attain 20%+ compounded long-term annual returns: virtually impossible (~1%)
- … an intelligent, dedicated investor can attain 15% compounded long-term annual returns: highly improbable (~5%)
- … an intelligent, dedicated investor can attain 12% compounded long-term annual returns: unlikely (~20%)
Base rate for an intelligent, dedicated, aligned investor to attain 12% compounded long-term annual returns:
- … an average person can make some money day-trading, after one year: highly improbable (~5%) [1]
- … an average person can earn a decent living day-trading, after one year: virtually impossible (~2%)
- … a dedicated and talented person (with mentor guidance) can earn a decent living day-trading, after 1 year: unlikely (~20%)