Survival Bias

My favorite bias is the survival bias. Everybody will tell you that stock investing is a great idea because it's been back-tested by some serious Guru and if you bought one share of some stock during the revolution you would have owned the GNP of some banana republic. But you forget that your back testing is only on stocks that are alive today and did not cover stocks in imperial Russia that a rational investor would have bought at the beginning of the century. Many continental stocks were recycled into wallpaper. When you look at markets you are only looking at the remnants, the parts that have survived. Or take real estate. People always say it goes up. But that works only if you always bought in places that became fancy. The S & P 500 or the DJIA or the Nasdaq 100 or any other indice is always changing the compoenents to weed out the losers hence it's very difficult to beat them.