Consider from The Babe Ruth Effect: Frequency vs Magnitude (PDF):
“Building a portfolio that can deliver superior performance requires that you evaluate each investment using expected value analysis. What is striking is that the leading thinkers across varied fields — including horse betting, casino gambling, and investing — all emphasize the same point. We call it the Babe Ruth effect: even though Ruth struck out a lot, he was one of baseball’s greatest hitters.”
Chris Dixon adds:
…about ~6% of investments representing 4.5% of dollars invested generated ~60% of the total returns. Let’s dig into the data a little more to see what separates good VC funds from bad VC funds.
Further from Dixon:
The home runs for good funds are around 20x, but the home runs for great funds are almost 70x. As Bill Gurley says: “Venture capital is not even a home run business. It’s a grand slam business.”
Speculation is not about a consistent 1% a month. That’s fantasy.