What is(n’t) Possible

I got pitched (spammed) some marketing materials from a tactical bond RIA a few months ago.  They claimed 9+% returns, no down years, and a sub 5% drawdown.  Audited over 25 years!  Oops, I forgot, also a 1.3 Sharpe Ratio.  And all of this is net of a 2% management fee.  Is that possible?  Yes.  Is it probable? Absolutely not.  For reference those numbers crush Bill Gross.  With those numbers they should be managing a few hundred billion.  Not surprisingly, they are not.

Reminds me of Wes’s old post on the impossibility of sustainably big returns.  

Fun quote from Charlie Munger to Jason Zweig (via Tren’s book)

“I know one guy, he’s extremely smart and a very capable investor. I asked him, ‘What returns do you tell your institutional clients you will earn for them?’ He said, ‘20%.’ I couldn’t believe it, because he knows that’s impossible. But he said, ‘Charlie, if I gave them a lower number, they wouldn’t give me any money to invest!’ The investment-management business is insane.”

Always be skeptical!