# Case: "star manager picks" and a "hot theme" tab

> Decide with fund and index data whether the app should add a star-manager tab and a hot-theme tab.

- Course: [Long-Term Investing: Index Funds, Risk and Your Own Behavior](https://productovi.com/courses/long-term-investing.md)
- Module: Can anyone beat the market?
- Lesson 16/32, ~33 min
- Source: https://productovi.com/courses/long-term-investing/case-star-picks

## Two new tabs

**Alex Tutor:** Last day of May at Zapas. The month's question, "can anyone beat the market?", now comes back as a concrete product decision for you to make.

**Ethan:** I've thought about it. Two tabs for launch: "Star manager picks" with Star Growth on top, and "Hot theme" with the tech theme fund. Both have amazing numbers. Users will love them.

**Grace:** They do have amazing numbers, all of them in the past. The PM owns this call. Let's put both tabs through what we learned this month and then write the decision down.

**Grace:** Start with the theme. Picture a user who opens the tab at the start of year 34. The chart shows Tessaro Tech Theme over years 30 to 33: +28%, −6%, +34% and +22%, almost double in four years (+96.7%). The user puts in \$1,000 and holds to the end of year 40.

**Ethan:** And that chart isn't even wild. One down year, steady gains. It looks like a trend, not a bubble.

**Sofia:** Year 34 went well too, +30%. Then years 35 to 37 came in at −30%, −24% and −16%.

> **Exercise:** Tessaro Tech Theme returned −30%, −24% and −16% in years 35, 36 and 37 (synthetic, nominal). What was its total fall over the three years, in %? Give a positive number.

**Ethan:** Fine, it fell. But the user caught a +30% year first. Surely that cushions it?

**Grace:** Follow that one user's \$1,000 year by year, next to the same money in the world fund.

**1,000 dollars bought at the start of year 34: theme vs world**

| End of year | Tessaro Tech Theme | Tessaro World |
| --- | --- | --- |
| 33 | 1000 | 1000 |
| 34 | 1300 | 1140 |
| 35 | 910 | 1094 |
| 36 | 692 | 897 |
| 37 | 581 | 951 |
| 38 | 651 | 1275 |
| 39 | 677 | 1691 |
| 40 | 738 | 2185 |

*Value at the end of each year; 33 is the purchase. Tessaro Tech Theme vs Tessaro World, nominal dollars, synthetic data.*

> **Exercise:** 1,000 dollars bought at the start of year 34, after the four-year chart, and held to the end of year 40 became 738 dollars in Tessaro Tech Theme and 2,185 dollars in Tessaro World. How many dollars less did the theme buyer end with?

**Sofia:** So a "Hot theme" tab would have looked its best at the start of year 34, right when this user bought.

**Grace:** Yes, it's last week's timing problem wearing a product badge. A sort by recent return arrives after the gains it advertises.

## The star tab

**Ethan:** The theme was a bubble, fine. But Star Growth is a real manager with a real record. 9.88% a year beats the index's 7%.

**Grace:** For years 1–7. You saw what came next. Check it against the whole group in the fund data before you decide.

**Dataset (CSV):** [20 fictional active funds and the index fund, real returns a year (synthetic)](https://productovi.com/datasets/long-term-investing/case-star-picks/active_funds.csv)

p1_return_pct: years 1–7; p2_return_pct: years 8–14 or until the fund closed (status closed, closed_year). IDX is the Tessaro World index fund after its 0.2% costs; fee_pct is each active fund's yearly fee.

![A star tab would show 9.88% a year, but the next 7 years gave 4.10%; a theme tab would show +96.7% in four years, but 1,000 dollars bought after it became 738 vs 2,185 in the world fund.](https://productovi.com/courses/long-term-investing/diagrams/m4-l4-two-tabs.png)

*Both tabs sell the past; users get what comes next.*

> **Exercise:** In the fund data, at least one of the five best funds of years 1–7 stayed in the top five in years 8–14.

**Ethan:** So what do we show users who want something exciting? If we say no to both, they'll go elsewhere for it.

**Grace:** That's a fair worry, and it's a design question, not a data question. We can be honest about themes without ranking them by last year's return.

> **Exercise:** If Zapas lists a theme fund at all, which card is honest?

> **Exercise:** Which pieces of evidence from this month support saying no to a "Star manager picks" tab? Select all that apply.

**Ethan:** Fine. But tell me what would change your mind. If a manager really is good, I don't want us to be the app that ignored them.

> **Exercise:** Ethan asks: "What evidence would make you add an actively managed fund to the app?" In 2–3 sentences, name what you would need to see and why returns alone over 7 years are not enough.

**Sofia:** Should the memo say the data are synthetic? Ethan might use that to wave it away.

**Grace:** Say it in one line. The numbers are invented, but the mechanisms aren't: rankings that don't repeat, closed funds that vanish, buyers who arrive after the chart. Those are what we design against.

**Grace:** Good. Now the full decision for both tabs, in one memo Ethan can take to the launch meeting.

> **Exercise:** Write the decision memo on Ethan's two launch tabs: "Star manager picks" and "Hot theme".

**Grace:** That memo will hold up in the meeting. June's question is the one Ethan never asks: what does a fund really cost, all in?

> **Key ideas**
>
> - A "hot" ranking shows the past run; buyers get the years after it. The theme's chart showed +96.7%, then it fell 55.3%: 1,000 dollars bought at the start of year 34 became 738 vs 2,185 in the world fund.
> - A "star" ranking didn't repeat: the period-1 top five averaged 3.96% next vs the index's 6.00%, and seven years can't separate skill from luck.
> - Build the case on what holds (persistence, noise, costs, survivorship) and avoid "never".
> - Label risky products by what they are and their worst history, never by recent return.

> **Educational, not advice**
>
> This lesson explains how investing works; it doesn't tell you what to buy. Investments can fall and you can get back less than you put in. Check the current rules where you live or ask a licensed professional.

**The "Hot theme" tab at the start of year 34: 1,000 dollars in Tessaro Tech Theme over years 30–33**

| End of year | Tessaro Tech Theme |
| --- | --- |
| 29 | 1000 |
| 30 | 1280 |
| 31 | 1203 |
| 32 | 1612 |
| 33 | 1967 |

*Value at the end of each year; 29 is the start. Yearly returns +28%, −6%, +34% and +22%, +96.7% in four years. Nominal dollars, synthetic data.*

- Previous lesson: [Timing the market and the best months you miss](https://productovi.com/courses/long-term-investing/timing-best-months.md)
- Next lesson: [Every layer of cost: fee, spread, FX, platform, tax drag](https://productovi.com/courses/long-term-investing/every-layer-of-cost.md)

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