YOU UNDERSTAND ALL YOU REALLY NEED TO KNOW ABOUT THE most important characteristics of investment performance statistics when you accept as obvious the following proposition: If many people are in a coin-tossing contest, you can predict two results with great confidence:

1. In the long, long term most coin tossers will average about 50 percent heads and 50 percent tails.

2. In the short to intermediate term, however, some of the coin tossers will appear to be somewhat better than average at tossing heads—or tails—and a very few will appear to be much better than average.

If we were to inspect the record, surely the data on each individual coin tosser would be clear and objective. But we’d know better than to ...

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