Survivorship Bias

9 Replies

Many people are familiar with 'survivorship bias' when it comes to mutual fund investing, the basics are this:  a fund company may start many funds over its lifetime with different strategies.  The ones that do poorly fail to attract enough money to stay open, or are closed when failure is acknowledged.  Those closed funds are rarely included when the fund company, or mutual funds in general are evaluated.  So the same fund company, if they started 10 funds, 3 of them managed an average 15% return, and 7 of them managed 1% returns, but they closed 5 of those 7.  They are left with 5 funds, 3 with 15% and 2 with 1%, and then they come up with 'average performance' using only those 5.

I'm curious about 'survivorship bias' in real estate investing.  Specifically, can we analyze the data on the bigger pockets message boards to get any idea about it?  The amount of users on here seems to keep growing, so: are we nearing 'big data'? where the data does not have to be perfect to come to some conclusions?

Can the guys who run the site mine the old 'new member posts' to see how many realestate hopefuls actually stick around and post?  How about 'my first flip' posts, how many people announce the start of their first project on here, but then never come back?

The successful people on here have strong track records, but I'm afraid at times that it is guru-esque: the failures disappear, so we're only left with the successes.  How many lives are being destroyed by the perception that 'its easy' or 'all it takes is hard work' or 'house prices are low and interest rates are low, you can't go wrong' or 'real estate is way better than the stock market' ?

Anecdotal stories of success are only told by the winners, so following this post with a lot of personal stories of your own successes does not add to the discussion.  Where's the data?  A similar post by Dave Krulac about most real estate investors only owning a single property hinted to there being a disconnect between the perception that there are many people out there building small real estate empires vs. maybe the truth that there are many people out there building tiny real estate investments that they overpaid for and run poorly.

Just pondering if we have enough data on these boards to come up with anything that fosters discussion.

@David C.   the site is what you make it for you.  While it is helpful to see how others are doing, its like college.  For some folks it is the right decision, for others it is a hands on business.  I know a few guys who went to college and then went to work for McDonalds.  Smoking pot and only doing enough to barely pass classes did not help them in the business world.  Other folks got high paying job offers before they graduated and are doing well.  Some got lucky some got unlucky.  it is what you make of it.  If you follow the podcasts you will notice there are stories of failure too.

@Jerry W.  I'm with you 100%  I did not really mean to say that I thought the site was responsible for anyone's success or failure, or that it was misleading people, I can see how my original post sounds that way.

There will be survivorship bias, I guess I'm just curious how big it is?  Do 90% of new members only post once?

What % of 'my first flip' posters stay active on the site?

Maybe stats like that are meaningless, people could leave the site for many reasons but still be out there kicking butt.

Is there any value in these posts as fodder for statistical analysis?

David, are you by chance, attempting to enter the competitive world of RE forum posting here on the premier site, directly challenging myself and Dion, for the longest wordy post on this sites? Because if you are, my friend, I will defend my title to all comers!

(LOL)

Edited: No, data here would not yield any statistically valid correlations to success, I'm sure.  

@Jon Holdman  can come closer the anyone answering that I would think.

I think anyone can mine old posts, if you have the time and are really bored.

Do they go on to succeed, no, most fail, just like in real life.

Oh, they are a ball of fire when they get here, hyped up with the likes of a few on here, you know, the speaker types that run circuits, sell programs and hypnotize newbies with claims of flipping a contract for 45K or whatever, but they are gone after they hit reality.

I have no idea about the data, like the average term of a membership, but since they are free and if they don't go to the effort to sign out or terminate, once a member always a member. I'll bet we have a couple members with silent keyboards (past away) that may have their membership still active. So, getting meaningful data might be tough.

BP is a two edge sword, if you didn't allow people to connect, try to find other to network with, build relationships, they wouldn't be here as much if at all. Information was the purpose, giving good advice and allowing many opinions to form a consensus over some issue. The down side, is that we have members who really don't participate in giving advice or good information (most can't anyway) and use BP to draw in others to their guru type stuff, program, book, strategy they mentor, whatever. So, many are here simply to stir activity, gain popularity, get a following to lead the naïve sheep for a haircut.

I have watched newbies come and go over 5 years, I'd guess that half are gone in a year, another 30% hang around for a couple years, 10% will be in the black in a couple years and post an occasional deal, the other 10% will be here in 3 years actually making a living at it, top 10% of those 10% will be doing pretty well.

Guess what, it's close to the real world, most new agents fail within 3 years. Most new agents without close supervision won't get a sale in the first six months, most do one in the first year.

The no money, no credit types, most all are gone in the first year, RE takes money, takes awhile to figure out they were lied to.

As to the mutual fund bit, BP isn't really in the same light, it's not the BP performance that effects real estate investing, it's the people here who contribute. BP is the building the fund is managed in, Josh owns the building, it's the people doing the work that attains the yield.

Well, for 5 years I said I don't network with members, but, this past couple weeks I have discussed a very limited business arrangement with one member, if that pans out, I'd have to say it was due to participation here or we would not have crossed paths. Even at that, I'd have to say I'm not here to drum up business as 97% or so are, nothing wrong with that, but it's how they go about doing it taking advantage of BP and the members.

Did that come close to answering your questions?

I will concede that your post is longer than this one, by word count, I hit return more than you did perhaps.

Good

Luck

With

Your

Findings!

:)

   

I get noticed when folks say my name, one of the benefits of having a unique first name.  Anyway, I am not going to make a run at longest post here but after reading the post, I thought the idea was an interesting one.  Perhaps the utility of the data can be tweaked more so than mentioned here and I would presume that could benefit BP as a whole to some degree.  Details perhaps for a later time.

What I did want to share is two of my favorite ridiculous correlations just to throw caution to the wind on how we tend to treat correlations where a correlation may not truly exist.

Would you  believe:

1.  There is a correlation between the number of people who drown by falling into a swimming pool and the number of films Nic Cage appears in.

That for some reason just cracks me up.  Not for the tragedy of the drowning folks but more because Nic Cage movies are usually dumpster fires.  

2.  There is a correlation between the cost of a bag of potato chips and the consumption of sour cream.  

It baits you in and you even think you can understand 'how' they are related but in fact they are not.  

Like I said, an interesting topic.  

@Dion DePaoli  

I get #2, not #1, and who is Nic Cage?

Here is where you might begin in understanding the nature of posters on BP (or any site).

Cognitive bias is applied in economic psychology to study reactions, selections or choices, fears, our naïve nature, how we justify things and more.

I studied these aspects a bit in school, but there was a short sales book that identified personalities and the best way to handle them, I couldn't find the book and I've forgotten most of it, I just use a big hammer on most personalities, works for me.

I did find this for anyone interested. It's interesting to go down this list and identify the reactions and opinions of those on BP.  Yes, everyone is in there.

You can also see the psychological ploys used by our resident gurus and those seeking attention. One guy on here can hardly post anything without tying it to some success story or the wealth he claims. The wholesaler advocates are in there, doing the wrong thing for their right reason.

It would be interesting to tie these biases into your RE business, understand why you do things even when you know it's a bad decision.

All those lives destroyed or people hurt from guru talk, the cheerleaders of poor practices, that can be identified too. You can even find the justifications for allowing bad information to remain posted on the internet, refusing to take responsibility.

You'll find why the newbies flock here and why the fly away. And, why those who fail don't post failures to offset the claims of hype.

Enjoy, learn something about yourself today.   

http://en.wikipedia.org/wiki/List_of_cognitive_bia...

And Dion, yes, I know who Nic Cage is, one of the best psycho actors around. LOL

Great post!  As the data guy here at BiggerPockets, this is definitely a topic that interests me.  After all, the site grows and we alI get some job security if we help more and more people to be successful.

I will say that I have not run analysis specific to the points that David brings up yet.  That's a shame and something I have put on my to do list for this week!  I can't promise that I'll be able to publish any conculusions - BUT, I will point out some very public data about the site, and let you draw some conclusions on it:

The "New Member Introductions" tab has less than 15,000 topics.

BiggerPockets boasts over 218,000 members on its homepage.

One may infer that under 7% of members have introduced themselves in that forum.

What does that tell us about the success rate of that 7%?  Nothing.  That said, it definitely says something about 93% of the members that create an account.

@Bill Gulley   Correlation does not imply Causation!  however, in a book I read about 'big data' - those computer science guys are embracing correlation like crazy.  They are basically saying: if you prove your correlation with enough data, causation does not matter: plan on the correlation to continue, and make money off it.

As for value from mining the data,  I'm just curious really.  Bill says something about 10% being in the black.  What if its 1%?  Does it matter?  probably not.

Its like a fast river with an island in the middle.  On the island is a bunch of guys having a party talking about how fun it was to swim across the river, and how easy it was.  But how many bodies are downriver?  The answer makes you think a lot differently about that party on the island.

@Bill Gulley  your link failed me: wiki... list_of_cognitive_biases  worked, your ended with bias.. and came up 'not found'.

I wonder which one I am :)

Sorry, it just worked for me. You could google it too. I know you weren't just saying it's not quite the same, that's all.

I have some chart on my home page here, activity levels, there is no base line I found, have no idea what that is or is suppose to represent. I guess it gets people to compete with themselves....LOL

Scott, have fun. :)