Too good to be true? It might just be a serious case of cherry-picking

Welcome to another review of possibly misleading ads.

Given that I am quite heavily into financial stuff, it is no surprise that I am targeted by things like these:

Curiosity piqued, I went over to Facebook's ad library to see if there are more of the same thing.

Of course there are:

All promising an 18% annualized return (which I will refer to as "CAGR").

Now, I have absolutely no doubt that all these funds does indeed return an 18% CAGR over the past few to even 10 years. However, what got my curiosity was that most of these funds are openly advertising their positions to, I believe, sell the quality of their funds. After all, if you hear stuff like Tesla, Apple, Microsoft, you would be better assured that they're not into shady stuff.

This also does allow me to dig a little deeper to discuss if these funds are indeed worth it?

Personally, I don't think so.

Here's a few assumptions before I go on,

1. The mentioned stocks should comprise of a significant portion of the fund (i.e. >50%). Why? Because if a fund holds so little of the stock that they are flexing with, then you are actually not putting money where your mouth is and you are likely throwing darts at every single tech stock and hoping some stick. So that is already a natural fail.

2. Data used are from Dec 2011 to Dec 2020, I am not going to be very particular with the data I chose here since the time frame is long enough such that noises are insignificant.

3. CAGR is linear across the years.

Presenting to you 5min of data collection:

These are just stocks that were mentioned across the ads, I am NOT the one coming up with these. I have even excluded Tesla's ridiculous CAGR into the average just because it is simply not fair to any benchmarks. Don't say I never give chance.

As we can see, an average across the 'flexed' stocks return an annualized 33.9%, while the fund itself is at about half of that, what gives?

Based on this, I am simply inferring that a few factors could exist:

1. The rest of the stocks other than the mentioned ones are straight up junk

2. Operating expenses, fees and commissions far outweigh any potential return that the underlying assets are returning

3. ....okay that's about it.

Another simple calculations below where:

r1 = Rate of return of the OTHER shares in the fund

r2 = Rate of return of the mentioned shares in the fund (as shown above)

w1 = Weightage of the OTHER shares in the fund

w2 = Weightage of the mentioned shares in the fund

As we can see, assuming it's 50-50, it would mean that the average of the non-mentioned stock in the fund is only returning 2% for the average to be 18%. If the mentioned stocks are slightly higher at 60%, it would probably mean that the other stocks are actually losing money. Might as well buy dogecoin?

Ironically, all these funds underperformed any of the single stock that they mentioned as their selling point, so if anything, I would rather buy the company stocks itself rather than investing in such funds.

These are notwithstanding the typical fees (1-2% p.a.), mandatory contributions and lock-in periods.

Additionally, I believe it is also not without reason all these tech funds are heavily advertising now. Likely they too know that the tech boom will not last forever. Even if there are no corrections, or tech just simply matures and grow at a slower rate, the huge figures of 18% PER ANNUM!! will slowly deteriorate as the years go by.

Of course they know this. To their credit, the people coming up with these funds are likely finance professionals, and these are simply marketing - selling you historical performance implying that it will last forever. Is this skill? Or simply Survivorship Bias?

It is time like these where even the truth can be misleading, that we need to peer deeper into what makes up the truth.