From Jim O’Shaughnessy of O’Shaughnessy Asset Management: Over shorter periods, your results are highly contingent on luck and chance. This is vital to understand because you might see a bad process provide excellent results due entirely to chance and a good process provide poor results for the same reason. Consider a simple strategy of buying the 50 stocks with the best annual sales gains. But consider this not in the abstract but in the context of what had happened in the previous five years: $10,000 invested in the strategy grew to $33,482, dwarfing the same investment in the S&P 500, which grew to $16,220. The three-year return was even more compelling, with the strategy returning an average annual return of 32.9% compared to just 7.4% for the S&P 500. Also consider that these returns would not appear in a vacuum — if it was a fund it would probably be featured in business news and the "long-term" proof would say this intuitive strategy made a great deal of sense and would attra...
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