How would you like to generate 40% annual returns for three decades? Build a firm with billions of dollars under management that's the envy of the industry? Become so influential that your peers -- assuming you have any -- are so in awe of you they are afraid to discuss you with the media?
Sounds great, right?                                          

Well, forget about it. Jim Simons, the quant whiz who built teams of computer science wizards and math geniuses into Renaissance Technologies, is a once-in-a-lifetime talent. We learned from journalist Gregory Zuckerman that Simons’s fund returned an insane 40% annually. This year, according to Zuckerman, the firm’s flagship Medallion fund is up 24% after costs. Before fees, in the midst of the conoravirus crisis, the fund gained 39%.

But here's the thing: You are not Jim Simons

What about Pershing Square Capital Management LP, run by Bill Ackman? Concerned about the impact of the coronavirus, Ackman hedged the fund’s equity positions by buying credit default swaps on various investment-grade and high-yield indexes. As the markets tumbled 35%, the trade netted the fund more than $2 billion. 

Nope, you are not Bill Ackman either. Neither am I.

Oaktree Capital’s Howard Marks was thinking past the housing crisis in 2006-07 when he decided to raise a $3 billion distressed-debt fund. It became so oversubscribed he had to set up a second fund. Oaktree ended up raising $11 billion to buy distressed assets when everyone else was panic selling. The returns were spectacular.

And sorry, but we are not Howard Marks, either.

There are two critical aspects to these examples: First, they reflect what rare outliers these traders are. This has nothing to do with historical equity returns of 8% to 10%. What makes these returns so astonishing is that they are so far outside the usual distribution curve.

Second, these are all stark examples of survivorship bias. We read much less about the funds that made black-swan bets and proceeded to go south. Remember those who were counting on hyperinflation in the 2010s? Bitcoin since 2017? Short the VIX, or long oil this year? Short U.S. Treasuries for, I don’t know, forever? Anyone who was on the wrong side of those trades -- and there were legions of money managers who were -- do not send out press releases touting their results; instead, they lay off staff, return what little capital is left to their investors and quietly wind down.

There is an unhealthy tendency among us to look at the most successful traders and investors with envy. The desire to imitate those accomplishments is powerful, compelling – not to mention dangerous. Yet these are one-of-a-kind experts with unique skill sets, deep insights and decades of experience that make them inimitable.

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