Illusion of success: Why copying successful investors is a risky bet

Here is a really fascinating story from World War II, when the US military was examining its bomber aircraft to see where to reinforce them.

- Devina Mehra

Here is a really fascinating story from World War II, when the US military was examining its bomber aircraft to see where to reinforce them. The aircraft returning to the base were examined to see which parts had taken the maximum hits, and plans were afoot to reinforce these parts.

That was when mathematician and statistician Abraham Wald pointed out that this analysis could be totally off, because it did not take into account the aircraft that did not return to base.

The parts which showed no hits were probably the parts where, if the aircraft took a hit, it would not survive and be able to return to base. The bullet holes in the returning aircraft, contrary to conventional thinking, represented areas where the bomber could take damage and still fly well enough to return safely to the military base.

So Wald proposed that the navy reinforce the areas where the returning aircraft were unscathed, inferring that planes hit in those areas were lost. It was a brilliant piece of analysis that totally inverted the conventional way of looking at a problem.

You must be wondering what this story has to do with following successful investors? Your starting point is investors who are/appear successful today. Then you look backwards at the strategies they have employed in the past. You are starting with success stories of, say, billionaire stock investors and attempting to reverse-engineer a personal pathway to similar success.

The stated or unstated presumption is that if you follow their strategies, you will see similar levels of success.