All models are wrong, some models are more wrong than others. The streetlight model Exponential decay models are quite common.  But why? One reason a model might be popular is that it contains a reasonable approximation to the mechanism that generates the data.  That is seriously unlikely in this case. When it is dark and you’ve lost your keys, where do you look?  Under the streetlight.  You look there not because you think that’s the most likely spot for the keys to be; you look there because that is the only place you’ll find them if they are there. Photo by takomabibelot...

Only puny secrets need protection. Big discoveries are protected by public incredulity. – Marshall McLuhan Random portfolios have the power to improve the practice of asset management in several ways.  Here are six. 1) Measure active managers There is no convincing evidence that more than a handful of funds have consistently outperformed.  This should tell every active fund manager on the planet that the present form of performance measurement is inadequate. Active fund managers presumably believe outperformance is plausible.  Perhaps you don’t believe any fund truly outperforms. ...

US large cap market returns. Fine print The data are from Yahoo Almost all of the S&P 500 stocks are used The initial post was “Replacing market indices” The R code is in marketportrait_funs.R Subscribe to the Portfolio Probe blog by Email