The Economist had an article about Emerging markets bouncing entitled Counting their blessings.

The table to the left was presented. Looking at it would tend to make a person believe that those emerging markets are on fire and really paid off over the last 2 years.

While a nice bounce has been had, the truth is a little less prosaic. The fixed unit measure of a year starting on Jan 1 to Dec 31 is a cultural creation and can play tricks when we use short cuts like average annual returns (ask your fund manager about this). While many think in yearly terms like this, few actually invest at the beginning and ending of the year.

The data as presented at first glance might lead one to believe that buying and holding for that period of 2 years would put one in a pretty fine position.

But, there is a little something called siegels paradox which means that a gain relative to a given loss is not symmetric. This effect is amplified with volatility and kicks in significantly over a 13% loss.

**Example: If you lose 50% you need to make 100% from that point on to make it back up. **

Here is the table to the left with the arithmetic mean (average) and the Geometric mean (compounded) value presented. Buy and hold is showing** losses in 7 of the 8 markets **presented for the respective period.

Yes, there was a great bounce, but not high enough for most to be above water. After factoring in the cost of capital at a few percentage points, average fund management performance usually 2-4% below index and fees of 1-2% one is seriously defeated.

Another sad fact is that almost all investors under perform the vehicles they invest in. This can be shown in studies of money flows, where people buy high and sell low.

My point is** it ain't what you know, its what you know that just ain't so.**