Survivorship bias
The error of judging something by the examples that survived or succeeded, while ignoring the many that failed and dropped out of view.
If thousands of people try a strategy, a few will have impressive results by chance. Those survivors are visible; the rest are not. Judging the strategy by the survivors makes it look far better than it is.
Tip groups, trading courses and fund advertisements often show only their successes, which is survivorship bias at work, whether by accident or by design.
Example
If 1,024 people are each sent random up-or-down predictions, about 32 will see five correct calls in a row by pure chance. Showing them only those five calls creates a "perfect" record out of nothing.
Learn more in these lessons
- Stock tip groups on Telegram and WhatsAppAre stock tips from Telegram and WhatsApp groups trustworthy?
- Misleading numbers and chartsHow can true numbers and charts still mislead?
- Fake testimonials, screenshots and misleading advertisementsCan you trust testimonials and profit screenshots in investment ads?
- Misleading backtests and cherry-picked resultsDoes a good backtest prove that a trading strategy works?
- Common stock market mythsWhich common beliefs about the stock market are wrong?
- False breakouts and misleading signalsWhy do so many chart signals fail, and how can you tell?
- Survivorship, look-ahead and other backtesting biasesWhy do backtests built on real data still give unrealistic results?
- Active and passive fundsShould you choose an actively managed fund or an index fund?
- Case study: a valuation bubble (technology shares, 1999-2002)What does the dot-com bubble teach about paying too much for good ideas?
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