Sharpshooting the Investment Gurus

Take a rifle and randomly spray bullets at the side of a barn. Invite some gun-toting friends around to see your handiwork and accept their lavish praise as a dead-eyed sharpshooter, knowing all the while it’s an illusion. The trick is to paint the targets after you’ve made the bullet holes. This, the Sharpshooter Effect, is essentially how many business gurus and investment analysts make their living. Worse, the effect affects statistical analysis of data that are genuinely important, like clusters of birth defects. The problem is that we’re not very good at distinguishing randomness from order and this causes us no end of grief as we pursue illusory patterns in the belief that we’re being smart.Meeting OprahManagement and investment gurus are a breed apart whose opinions offer the rest of us hope that we can learn from their ideas to develop skills that ensure we can create above average companies or secure above average returns on our investments. In book after book and article after article we’re treated to example after example of real-life imitating theory as the gurus’ ideas are hammered home to us in the way we understand…