It is welcome to see that Monkey with a Pin may have had a direct impact on one of it’s contributing sources. Last week saw the publication of the latest edition of the Credit Suisse Global Investment Returns Yearbook 2103 – down here.
For the first time, they are now talking about survivorship bias in their data. Hooray! However before you get too excited, all they have done is to include a couple of countries that have seen their stockmarkets liquidated e.g. Russia in 1917 and China in 1949. The impact on their average equity returns is minimal (down 0.14% to 5%).
What they have yet to do is to address the more serious issue I raise about survivorship bias in the constituents of the index itself. That is where the real error in their returns are due to survivorship bias and these are significant – I estimate they are reducing returns by 1% a year if you are an investor in individual stocks (as opposed to buying index trackers). I agree it is more difficult to calculate this (as you just can’t lift a dataset of FTSE index scores and pop them into a spreadsheet) but it behoves the likes of Dimson, Staunton & Marsh to try to do this or at least acknowledge the problem.
Not only do they steal survivorship bias from Monkey with a Pin, but they are also mentioning that returns need to factor into costs too – albeit only as an aside on Page 14, but that is progress.
The final good thing about the report is, like Money with a Pin, it makes a big point of reminding investors that returns are just not going to be as high as they expect. To quote them:
Many investors seem to be in denial, hoping markets will soon revert to “normal.” Target returns are too high, and many asset managers still state that their long-run performance objective is to beat inflation by 6%, 7%, or even 8%. Such claims are unrealistic in today’s low-return world.