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Separating luck from skill

It is often thought that Napoleon said “Give me lucky generals” implying that he didn’t mind being lucky if it meant that he still won the battle.

In fact, Napoleon was almost certainly misquoted. It is more likely he was quoting Cardinal Mazarin, who noted that one must not ask of a general; “is he skilful?”, but rather “is he lucky?”

Clearly the consequences of relying on luck in investment are not as significant as in war, but nevertheless, it can be costly.

A second instance where we seek to separate luck from skill, in this research paper we identify the risks in assuming that track records and investment skill are one and the same.

What evidence have Inalytics used?

This research paper is based on 96 global emerging market (GEM) equity portfolios analysed by Inalytics as a part of an asset manager selection exercise.

Portfolio manager data for the selection and analysis comprised of at least 5 years of monthly holdings data, whilst the broad selection criteria ensured that there was a wide range of portfolio managers and investment styles analysed. The breadth and diversity of asset managers included in the search give us a high degree of confidence in the robustness of our analysis and results.


Download the full study below to view our analysis of how to determine luck from skill in the investment process.

For further insight into how data analytics can be used to make the due diligence process during asset manager selection more efficient, listen to episode 6 of our Analysing Investment Skill Podcast.

Contact us for further information about how Inalytics analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.


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