Comments on: Past Performance Does Not Predict Future Returns

By: Nitin Rao

Nitin Rao — Wed, 12 Mar 2008 18:48:09 +0000

Yes it’s an amazing world of Asset Management wherein you are not held guilty even if you perform badly going forward and yet you get paid for managing someone’s money.

http://www.my2dimes.com/
Nitin @ My 2dimes

By: nickel

nickel — Wed, 12 Mar 2008 16:14:59 +0000

Ah, yes. I missed the connection between Ria’s and KC’s comments. I’m with Ria on this one.

By: MITBeta

MITBeta — Wed, 12 Mar 2008 16:11:51 +0000

Nickel:

You may not have suggested it, but KC certainly did…

By: nickel

nickel — Wed, 12 Mar 2008 14:49:26 +0000

Ria: I agree, and I didn’t mean for my closing line to suggest that people should try to time the market. Rather, I was contrasting that with the inevitable outcome of chasing hot fund performance, which typically results in buying high and selling low. The exact opposite of what you want.

By: Ria Rhodes

Ria Rhodes — Wed, 12 Mar 2008 14:36:49 +0000

The “buy low and sell high” mantra is heard across the internet investment boards almost universally, but it is in practice often just a form of market-timing, and market-timing is frowned upon by many financial professionals when used by individual (as opposed to institutional) investors.
No doubt investors of equities want their shares to increase in worth, and the planned, periodic purchases of additional equities/fund-shares during the accumulation phase of acquisition is the consensus opinion of many of the most respected personal finance writers on how to go about building your investment portfolio.

By: Dividend growth investor

Dividend growth investor — Wed, 12 Mar 2008 14:25:44 +0000

That’s why most investors will be better off investing in index funds and get “average” performance.
Most investment strategies out there are not good for the long term. They work for several years, then stop working untill everyone gives up on them. Think about Dogs of the Dow. It “worked” till the 1990’s and then it underperformed the market..

By: KC

KC — Tue, 11 Mar 2008 14:34:22 +0000

At one point a few years ago I had a revelation with “buy low, sell high”. It seems so obvious, but the point is to take good strong companies (probably everyday names) and buy them when their prices are low. Then sell them when prices are high. You can always buy them back again when they dip. So simple, yet so hard to get through my thick skull. I’ve applied this principle to several stocks – buying, selling, re-buying and re-selling several times. Never underestimate the simple phrase “buy low, sell high”

By: Requisite

Requisite — Tue, 11 Mar 2008 12:57:01 +0000

This cannot be emphasized enough.

Just last week I had a big debate with a ‘financial advisor’ who berated index funds, saying managed funds outperform, and that his firm ’screens’ for underperforming managers.

Performance chasing is the best known way to lose money.

By: Fiscal Musings

Fiscal Musings — Tue, 11 Mar 2008 12:48:42 +0000

I find it interesting that I hear more people talk about the past returns of funds rather than what it is exactly that the fund is invested in. Just the other day a co-worker told me that he was looking into a fund that a friend recommended that has averaged about 14%. No idea what the fund invested in.

By: MITBeta

MITBeta — Tue, 11 Mar 2008 12:16:20 +0000

Funny that this should come up just now. I am 3/4 of the way through A Random Walk Down Wall Street and this point could not be any more clear.

I was also showing the Mrs. a list of fund selections available for our daughter’s 529 plan, and it’s interesting that all of these funds still list 1, 3, 5 year and since inception performance, with a * that points you below: “Past performance is not an indicator for future performance.”

This reminds of the story about how the casinos figured out that by posting the results of the last couple of dozen Roulette wheel spins they increased their profits by getting people to bet on trends that have no influence on the next roll, rather than betting on odds.