Selecting on the outcome
Choosing cases because of how they turned out, then looking for what caused it. Without the cases that had the same traits and failed, you can't tell whether the traits matter.
In plain English
Study only successful companies, and every trait they share looks like a cause: humble leaders, a clear idea, a strong culture. But failed companies may have had the same traits. To learn what causes an outcome, you need everyone with the trait, winners and losers, and everyone without it. Otherwise lessons can be luck, or simply common.
Uncle Gary explains
A famous 2001 book picked 11 'great' companies from 1,435 by their results. One went bankrupt in 2008 and another was taken over by the US government. In our pure-luck model, the top 11 of 1,435 were exactly average over the next 15 years.
Why it matters for your money
'Copy what the best investors hold' is selecting on the outcome. A fair test sets the rule in advance and counts everyone who followed it.
Where we tested it
Related terms
All glossary terms. Educational content, not financial advice.