Skill vs. Luck

Michael Ervolini's book presents a framework for evaluating active fund managers by analyzing their decisions—what they buy, sell, and how they size positions—rather than relying solely on outcome-based performance metrics.

He introduces concepts such as counterfactual portfolios and measures for isolating the contribution of specific decision types to a fund's returns.

The book emphasizes the role of investment process and expert judgment, and explains how decision-based analytics can reveal persistent skills like effective buying and weak areas such as selling.

Ervolini discusses behavioral factors, the importance of process to curb automatic or emotional decision-making, and how better skill measurement could shift allocations between active and passive management.

He also considers the impact of AI and expects wider adoption of decision-based analytics to improve manager selection over time.