There were 100 monkeys and each toss coins – either head or tail. The monkeys were told by their trainers that they must toss in such a way so that the coins end up in heads. So these monkeys – who were skilled coin throwers - threw the coins into the air. The results were out – 50 monkeys’ coins were head. Amazing, these 50 monkeys have some skill or was it luck? Well, these 50 monkeys were asked to throw again and this time it must be heads again. The monkeys threw and 25 of time end up in heads. Marvelous. These 25 must be really good. Let’s ask them to throw again, and so out of 25 reduced to 14 which in turn reduced to 7 and reduced to 3.

The sequence were 100 -> 50 ->25 -> 14 -> 7 -> 3

These 3 monkeys must be extremely intelligent. Let’s put all our money with these 3 monkeys… they are the top fund managers ..opps I meant coin throwers.

For those who does not understand the morale of the story is this: Many fund managers have no real skill. Very often their relative returns to other funds are just random returns. By definition, there will be winners and losers. It does not mean that a fund has been consistently good for 5 years means it is a good fund because even those 3 monkeys can be consistently good for 5 iterations. In investment, it is not necessary to spot the best monkey. It is only necessary to ensure that one’s return tracks the market return. There are 3 risks in investment – small caps, value investing and market risks. It is not necessary to have a 4th risk (fund manager underperformance risk). It will bring great despair.