The dangers in cherrypicking data

This post follows on from my previous one, where you may recall that I was worrying about having done something wrong.

So that you don’t necessarily have to read it again, I was discussing the ludicrous scenario where an investor switches, at the start of each year, into the asset class that performs the best over the whole of that year resulting in frankly awesome returns. A scenario, by the way, that had made it into the newspapers.

I chose to ignore this unbelievable scenario.  Not unbelievable because of the returns – they’re there for the world to see, but unbelievable because as I pointed out, one has to be either magically psychic to utilise this strategy, or be in a position to influence the world’s financial markets.

My fears about having botched this exercise were not necessarily mistaken: I had done everything right with the data that I had.  Let me digress for a moment and point out a couple of things that I didn’t mention.

Interesting superannuation comparison

I found an article that went nationwide in Wednesday’s News papers interesting.

The centrepiece of this article was data obtained from SuperRatings in tabular form that purports to show that if a super investor invested $10,000 into superannuation on 1 July 2002 and switched on 1 July of every financial year into the best performing asset class of that year, they would have amassed a total investment of $37,000-odd by the end of June 2012.

(Source: The Advertiser)

The survey appears to ignore the impact of tax, transactional costs such as entry fees, switching fees, buy/sell spreads and contributions tax as well as earnings tax.  However, the end result is impressive.