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Beyond our ken

True, there was a scare during December as the All-Share powered ahead. That’s because December is always a demanding month for the income portfolio’s value as dividends accrued over the previous six months are distributed. Combine that with a stock-specific horror and the portfolio might have ended up underperforming the All-Share. As it was, no horror materialised, the All-Share did not have quite enough puff and the income portfolio finished almost three percentage points ahead of the All-Share with a total return of 21 per cent for the year, its first 20 per cent-plus return since 2013. So God’s in his heaven and all’s right with the world.

Well, let’s not overdo it. When assessing a portfolio’s returns – just as when assessing so much in life – it’s right to remember the effects of random distribution. Sure, we don’t like the notion that chance, luck, happenstance – call it what you will – plays a major part in shaping our ends. Fund managers and those who make a living picking stocks like it least of all, especially when they seem to be doing well. Acknowledge the power of chance and suddenly you acknowledge the limitations of the arguments that went into a stock selection; arguments that seemed so neat and persuasive were really just so much confirmatory bias. What’s so clever about that?

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