Toy model: A fund can do well or badly at the start of the period, and it can do well or badly at the end. Both happen completely at random. A fund that does badly at both ends is closed and never heard from again.<p>If you analyse funds in this situation, you will find that <i>every</i> fund that does badly at the start of the period does well at the end. (Because the ones that do badly at the end too are all gone.) You might be tempted to think up clever explanations about how fund managers with bad initial results make extra effort, or how stocks that do badly tend to rebound later as investors recognize their true value, or something -- but that would be a mistake, because in this situation the <i>only</i> thing leading to the relationship between early and late performance is the fact that the &quot;bad at both ends&quot; funds aren&#x27;t represented in the analysis.