Statistical question on investments

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by a searcher from University of Dallas
in Houston, TX, USA

5yrs ago

Statistical question on investments

For the statistically minded – what would be the statistically significant sample size that I would need to participate in to get Stanford study average return?

For traditional search funds?

For self funded searchers?

1 Like

88 Views

reply by a searcher 5yrs ago
from Harvard University in Toronto, ON, Canada

On page 9 of the 2020 Stanford Search Fund study, they provide a very detailed breakdown of the historical returns and how frequently different outcomes occurred (e.g. 33% of search funds don't acquire and lose 100% of capital, ). Assuming future returns mimicked past returns (this is a big if), you can very easily generate sample portfolios with a random number generator and see the returns you would get (Monte Carlo Simulation). Plot your IRR, ROIC, and VAR(ROIC) as you generate more samples and you'll quickly see how long it takes to converge on their returns.

Besides future returns mimicking past returns, you will also need to pick what outcome you expect in the "10X+ ROIC" case since this will drive a good chunk of total returns.