• pwlcapital.com
  • FR
  • Client Login
    • PWL Wealth Centre
    • NBIN My Portfolio +
PWL Capital
PWL Capital
  • Ideas & Insights
  • Meet the Capital Team
  • PWL Advisor Teams
    • PWL Capital Team
    • Bender, Bender & Bortolotti Team
    • Peter Guay Team
    • Parkyn – Doyon La Rochelle Team
  • Resources & Documents
  • What We Do
    • Portfolio Management
    • Financial Planning
  • Who We Are
    • Our Story
    • Board of Directors and Management Team
    • Careers
    • Governance & Internal Controls
    • Compliance
    • Safe-Keeping your Assets
  • Contact Us
    • PWL Capital Team
    • Bender, Bender & Bortolotti Team
    • Peter Guay Team
    • Parkyn, Doyon La Rochelle Team
PWL Capital
Benjamin Felix Benjamin Felix
March 3, 2016
Behavioural Finance Personal Wealth

Luck vs. Skill

On March 2nd, 1962, Wilt Chamberlain scored 100 points for the Philadelphia Warriors in a 169 – 147 win over the New York Knicks. This set the NBA single-game scoring record which still stands today. The game was not televised, in fact, no video footage of the game has ever been located. The stadium was only half full, and no members of the New York press were present. Audio recordings do exist, but only of the fourth quarter.

Despite the lack of evidence, it’s not hard to believe that Chamberlain, who averaged 50.4 points per game that season, could score 100 points.

His skill was obvious, and any coach would be confident putting the ball in his hands. Placing confidence in the skill of a money manager is much more challenging; the stock market is a world of randomness.

Imagine that a financial advisor who engages in security selection states an average annual return of 30% over a ten year period – a return in line with the 3 top performing hedge funds in the world. Unlike mutual funds, individual financial advisors do not have public performance disclosure requirements or standards, so much like Chamberlain’s 100 point game, supporting data for these numbers might be hard to find. However, assuming that the returns are accurate, they raise an interesting question: should a financial advisor who has produced returns of 30% per year for the past 10 years earn the confidence of investors?

Wilt Chamberlain was a physical specimen, and it was obvious that he wasn’t just getting lucky when he attacked the basket. It’s not nearly as obvious, though, when a financial advisor’s performance is due to skill rather than luck; while Chamberlain was clearly competing against smaller, less athletic players, stock pickers are competing against large institutions and hedge funds. Is it reasonable to believe that a financial advisor has more knowledge and expertise than their institutional competition? Is it likely that those 30% returns will persist?

As an investor, there is a choice to be made between following science-based academic evidence, which points to low-cost globally diversified market based investing, or following investment strategies that, while empirically successful over relatively short periods of time, have not been peer reviewed or statistically proven to persist through time. If capital is being used to achieve specific goals, like retirement, then following the evidence is the only responsible way to invest.

 

  • Share:
  • Facebook
  • Twitter
  • LinkedIn
  • Email
Benjamin Felix

Benjamin Felix
Portfolio Manager, Head of Research, MBA, CFA, CFP, CIM

  • Twitter
  • LinkedIn
  • Youtube
Benjamin Felix is the Head of Research at PWL Capital, a Canadian wealth management firm known for its publicly available thought leadership. PWL creates resources for Canadian investors including white papers, model portfolios, and research content. Benjamin co-hosts a podcast, the Rational Reminder, and is the host of a YouTube channel which together reach hundreds of thousands of people in Canada and around the world. Benjamin joined PWL Capital in 2013 after completing a degree in mechanical engineering and an MBA in financial management. He is a CFA charterholder and a CFP professional.
Contact Benjamin
More from Benjamin
Investment Industry Regulatory Organization of Canada
IIROC AdvisorReport

More from Benjamin Felix

Market Research
Benjamin Felix
Benjamin Felix

The business difference between product and advice

Oct 15, 2018
Market Research
Advanced Investing
Benjamin Felix
Benjamin Felix

Figuring Out Factor Investing

Aug 31, 2018
Advanced Investing
Market Research
Benjamin Felix
Benjamin Felix

Then, and now

Aug 13, 2018
Market Research

 Leave a Comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Subscribe to the Rational Reminder newsletter

Get more from Cameron, Benjamin and the team.

  • PWL Capital
    • Our Story
    • Our Board Members
    • PWL News & Events
    • Careers
    • Privacy and Terms of Use
    • Protection of Personal Information
    • Complaints
  • What We Do
    • Financial Planning
    • Portfolio Management
    • Our Team
  • Ideas & Insights
    • Advanced Investing
    • Behavioural Finance
    • Business Wealth
    • Compliance & Governance
    • DIY Investing
    • Family Stewardship & Philanthropy
    • Living in Retirement
    • Market Research
    • Personal Wealth
    • Starting Out
PWL Capital
Investment Industry Regulatory Organization of Canada
Canadian Investor Protection Fund
Center for Fiduciary Excellence
Global Association of Independent Advisors

Portfolio Management and brokerage services are offered by PWL Capital Inc, which is regulated by Investment Industry Regulatory Organization of Canada (IIROC), and is a member of the Canadian Investor Protection Fund (CIPF).

Financial planning and insurance products are offered by PWL Advisors Inc., and is regulated in Ontario by Financial Services Commission of Ontario (FSCO) and in Quebec by the Autorité des marchés financiers (AMF). PWL Advisors Inc. is not a member of CIPF.

Copyright © 2022 All rights reserved.
Designed and developed by Third Wunder
PWL Capital
  • Meet the Capital Team
  • PWL Advisor Teams
    • PWL Capital Team
    • Bender, Bender & Bortolotti Team
    • Peter Guay Team
    • Parkyn – Doyon La Rochelle Team
  • Ideas & Insights
  • Resources
    • All Resources
    • White Papers
    • eBook
    • Market Statistics
    • Important Documents
    • Model Portfolios
    • Book recommendations
    • Calculators
    • Checklists
  • What We Do
  • Who We Are
    • Our Story
    • Board of Directors and Management Team
    • Governance & Internal Controls
    • Compliance
    • Safe-Keeping your Assets
  • Contact Us
    • PWL Capital Team
    • Bender, Bender & Bortolotti Team
    • Peter Guay Team
    • Parkyn, Doyon La Rochelle Team
  • Client Login
    • PWL Wealth Centrenew
    • My Portfolio +
  • FR