INVESTING MUTUAL FUNDS Survivorship Bias

Here is the article.

What Is Survivorship Bias?

Survivorship bias or survivor bias is the tendency to view the performance of existing stocks or funds in the market as a representative comprehensive sample without regarding those that have gone bust. Survivorship bias can result in the overestimation of historical performance and general attributes of a fund or market index.

Survivorship bias risk is the chance of an investor making a misguided investment decision based on published investment fund return data.

KEY TAKEAWAYS

• Survivorship bias occurs when only the winners are considered while the losers that have disappeared are not considered.
• This can occur when evaluating mutual fund performance (where merged or defunct funds are not included) or market index performance (where stocks that have been dropped from the index for whatever reason are discarded).
• Survivorship bias skews the average results upward for the index or surviving funds, causing them to appear to perform better since underperformers have been overlooked.