Denton County Living Well Magazine May/June 2018 | Page 39

The Intelligent Investor “Learn every day, but especially from the experiences of others. It’s cheaper!” — John C. Bogle What Experts Say about “Past Performance” Bogleheads’ Guide to Investing: “Using past performance to pick tomorrow’s winning mutual funds is such a bad idea that the government requires a statement similar to this: ‘Past performance is no guarantee of future perfor- mance.’ Believe it!” JPMorgan Chase claimed 97% of their alternate-asset mutual funds beat their benchmark during the 10-year period ending December, 2013. Morningstar reported that only 33% beat their benchmark during the same period (past- performance calculations differ). Christine Benz, Morningstars Director of Personal Finance: “When we look at our data, at the factors that are most predictive of good performance going forward, low costs are a much better predictor than is great past performance.” Morningstar: “The star rating was not designed to have predictive ability about future performance.” Peter Lynch’s Fidelity Magellan Fund (FMAGX), once the world’s largest and most successful mutual fund, is now in the bottom 10% of its category (Sept 7-2016) for 10-year return. Bruce Berkewitz, manager of the Fairholme Fund (FAIRX), was Morningstar’s Manager of the Decade in 2009. In March, 2016 the Fairholme Fund was in the bottom 1% of all funds in its category for 1-year; 3-years; and 5-years. Wm. Bernstein, author of The Four Pillars of Investing: “For the 20 years from 1970 to 1989, the best performing stock assets were Japanese stocks, U.S. small stocks, and gold stocks. These turned out to be the worst performing assets over the next decade.” Jack Bogle: “The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future.” Jack Brennan, former Vanguard CEO: “Fund ranking is meaningless when based primarily on past performance, as most are.” Burns Advisory tracked the performance of Morningstar’s five-star rated stock funds beginning January 1, 1999. Of the 248 stock funds, just four still kept that rank after ten years. Ben Carlson, author of A Wealth of Common Sense : “Dow Jones looked at nearly 2,900 active mutual funds. Only 2 funds in the top quartile stayed in the top quartile of performance over the next four 1-year periods.” Andrew Clarke, author: “By the time an investment reaches the top of the performance tables, there’s a good chance that its run is over. The past is not prologue.” Jonathan Clements, author & former Wall Street Journal columnist: “Suppose you picked stock funds that ranked in their category’s top 25% over the past five years. A regular updated study suggests that less than a quarter of these funds will remain in the top 25% over the next five years--even worse than the result you would expect based purely on chance.” Prof. John Cochrane, author: “Past performance has almost no information about future performance.” S.T.Coleridge: “History is a lantern over the stern. It shows where you’ve been but not where you’re going” Dow Jones Indices Report, June 2015: “The data shows a stronger likelihood for the best-performing funds to be- come the worst performing funds than vice versa.” -- June 2016: “Only 3.7% of large-cap funds maintained top-half performance over five-consecutive 12-month periods. Eugene Fama, Nobel Laureate: “Our research on individual mutual funds says that it’s impossible to identify true winners on a reliable basis, even if one ignores the costs that active funds impose on investors.” For questions or comments please email [email protected]