Comments on: What Can Past Performance Tell Us?

By: Monevator

Monevator — Thu, 04 Feb 2010 10:19:10 +0000

The trouble is a “few big lucky picks” may be lucky, or they may be skillful — they may be Buffett buying American Express or Coca-Cola at just the right time, or they may be a me-too manager punting his way out of burnout.

I mean, people still argue Buffett was lucky.

All we can really be pretty sure of is in 20 years time we’ll look at these posts knowing there are a handful of young fund managers out there who will have delivered 15%-20% returns annualised between now and 2030.

Does any reader know how to identify them from the *thousands* out there? I don’t. I doubt their employers do.

For that reason, I’d rather bet on myself in the main if I go off-index. At least I get some fun out of the extra charges and potential under-performance!

By: Daddy Paul

Daddy Paul — Thu, 04 Feb 2010 01:38:31 +0000

I have had good luck with funds that have had good managers. The things I look for are the managers age (I am keeping an eye on my Gabelli funds) and fund bloat. If a fund gets too large I am out.

By: RetirementInvestingToday

RetirementInvestingToday — Wed, 03 Feb 2010 18:51:51 +0000

I’m using long run past history of stock markets (not funds as I now only buy index linked and save on the fees) to try and understand when markets are either overvalued or undervalued based on long run historical data. My method is based on the PE10 ratio developed by Professor Shiller. I’m then weighting my stock allocations based on this valuation method to try and squeeze some extra performance.

By: Mike

Mike — Wed, 03 Feb 2010 16:58:28 +0000

RJ: He suggests (as with funds with a long time frame) to focus primarily on expense ratio and transaction costs. (More on this–and the book–next week.)

By: RJ Weiss

RJ Weiss — Wed, 03 Feb 2010 16:56:55 +0000

One problem with looking at past performance is that most funds haven’t been around long enough. Even if a fund has been around ten years, that’s still not long enough to see what it will do in each type of market.

Mike – Does Kinnel give any advice for researching funds that haven’t had a long time frame?

By: Mike

Mike — Wed, 03 Feb 2010 14:48:09 +0000

Larry: Yes, I’m speaking specifically to Kinnel’s application of past performance figures of a specific fund to predict (aspects of) that fund’s future performance.

I’d agree that in a broader sense, past performance can be useful to learn things like “stock funds exhibit more volatility on a monthly basis than short-term government bond funds.”

By: Larry

Larry — Wed, 03 Feb 2010 14:45:35 +0000

Mike, maybe you’re talking about specific funds rather than entire asset classes. But just yesterday, Frank Curmudgeon wrote: “for the 42 years ending 2009 the stock market was up an average of 8.76% annually.” Surely that can be read as an encouragement to buy and hold stocks over the long term—precisely as a result of past performance. And many of us use similar benchmarks when thinking of bonds, cash, and other major asset classes. Past performance may not be a guarantee, but it indicates at least a trend and at best a probability. Obviously it stands to reason to pick funds with the lowest possible fees too, and to diversify and rebalance in order to spread the risk.

By: Miranda

Miranda — Wed, 03 Feb 2010 14:11:30 +0000

It’s always important to remember that old adage “past performance doesn’t guarantee future results.” But it can give you something of an idea. But it’s not great to completely live in the past, expecting the returns of the best years.