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July 31, 2006



Clinical, Mr S & M.


Chris, it says "Annual % change" there; does it mean that, or does it mean annual returns? If Bolton's stocks have lower market/book ratios than the allshare, then they are likely to have higher dividend yields.


D2 - sorry, I mean annual total returns, which include dividends.


And *someone* has to be the *best* fund manager, just as in a room of 1000 coin tossers someone will toss 10 heads in a row.


And are Bolton's returns net or gross of fees (this makes a big difference, because they jacked up the front end fee to soft-close the Special Sits fund when it got big)


I have never understood why people think that long term market outperformance somehow contradicts the Efficient Market hypothesis. If you take an arbitrarily long time period and measure average market performance over it, clearly some investors' records would be superior to that average ( as they can't all be the same). Looking back it is easy to identify many such patterns and instances and the fact that it happens has nothing to do with the EMT. This will happen simply due to the nature of averages and the fact that the sum total of all investors is the market.
This outperformance could well be explained simply by chance rather than any particular skill.

The more interesting question is whether you can predict outperformance in advance ( rather than by creative mining of past data). Could Bolton's performance have been predicted when he started out ? Even here it gets tricky as the number of holdings is also significant. Investors taking increased risk and holding a smaller number of stocks have a greater probability of long term outperformance ( effectively a reward for the increased risk) without contradicting the EMT. People like Buffett, Munger etc. fit into this bracket.

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