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0 pointsfoobarqux11y ago0 comments

That's helpful but the argument will always be that you just need to pick one of those four or that Kauffman are bad pickers of funds and therefore exclude many of the best from their allocation.

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michaelt11y ago

  you just need to pick one of those four

Outside of the VC industry, one technique used by some investment management companies is to launch enough funds that some will outperform the market by chance. Then they quietly close down all those that perform equal to, or worse than the market average and trumpet the success of the one or two that lucked out.

Perhaps which four of the thirty you should pick is only obvious with hindsight :)

  or that Kauffman are bad pickers of funds

I assume when they compare VC funds to a "common stock index" they mean an index fund [1], a type of fund that aims to provide market-average performance with lower fees than an actively managed fund. For example, an index fund tracking the S&P 500 does it by holding all the shares that comprise the S&P 500.

[1] https://en.wikipedia.org/wiki/Index_fund

foobarquxOP11y ago

I agree with you, it just would be nice to have some data to further support the argument. It is much more convincing if Sequoia funds have inconsistent or mediocre performance than if they all had outsized returns. I am also genuinely curious as to the exact returns the premiere funds have.

Also what I meant regarding bad fund picking is that the universe of VCs funds that were in the Kauffman portfolio may not have included all the great performing funds.

lutusp11y ago

> ... one technique used by some investment management companies is to launch enough funds that some will outperform the market by chance. Then they quietly close down all those that perform equal to, or worse than the market average and trumpet the success of the one or two that lucked out.

Yes, that's how independent investment advisors puff up their reputations also. In fact, it's the basis of a sneaky and convincing promotion scheme called "Miracle Man":

http://arachnoid.com/equities_myths/index.html#Miracle_Man

People who hear only the result of Miracle Man often say, "That's impossible!" But it's so easy that it can be automated.

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