‘no one ever got fired for buying Neil Woodford’.

bowlhead99

Sam_J12 wrote: »

I would say that statement is clearly false. Here are two examples. The "momentum" effect - where recent share performance in the last 3-12 months predicts short term future performance - is backed up by masses of academic literature and is an clear example of past performance being a guide to future performance.

Most of the time I leave London on the M1 I continue going rather than turn around in the short term. However, at some point I'll have reached my destination and my next move will be to head back, even though I'd been building up "momentum" toward the north. It's rare that i get as far as Edinburgh. But i guess it's true that if I'm going on a section of road I'm more likely to continue on it than do a handbrake turn. I will certainly catch out the idiots following me like a zombie if I do.

Also, I often turn off at J18 for the M6, but sometimes I continue up the M1 so it's a good job you haven't been waiting for me at Spaghetti based on past performance.

Past performance can indeed be a guide to the future, although neither an infallible nor a universally applicable one. Every political pundit, stock analyst and racing tipster acts on the belief that the past can guide us, and there is usually some truth in it.

Another example is of a fund like Manek Growth - http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F0GBR04RQG - where the fund manager has a return of -45% since the fund's inception in 1997. Can anyone claim with a straight face that past performance is not a guide to future performance here?

I would stay well clear as avoiding terrible funds is quite important to wealth preservation. It's one of the examples you could give when someone says passive funds are better than active ones because the average active is not that great, and then you point out that one can improve the average of the pool of actives by simply avoiding the ones you obviously shouldn't touch with a bargepole after reading up on them.

To quote Robin Angus from one of his Personal Assets Trust quarterly reports last year (from whom i also borrowed the comment about "a guide but not infallible nor universally applicable") - Investment management is hard enough without ignoring the lessons the past can teach us.

bowlhead99

BananaRepublic wrote: »

Unfortunately performance figures only go back 10 years. But even then you can see that some funds consistently beat the market. If we assume they are no more than monkeys, as some claim, then the probability of beating the average is 50%. So the probability of beating the average two years in a row is 25%, where we assume no correlation between years. Over 10 years the probability is 0.5 to the power 10 which is about 0.001 or one in a thousand. And yet there are many funds that consistently beat the average.

. There are a few which have. But make sure you don't confuse 'beating the average over 10 years' (probability: 50%) with 'beating the average every single year for ten in a row' (probability 0.1% and applicable to virtually no funds)

For example if you look at Jupiter European Growth over the last 10 years it has done very nicely but didn't beat the sector in all 10. In 2008 and 2011 it would have fared worse than the sector, because those were down years and it's not positioned to do well in down years because it's not that type of fund. The 0.1% chance of winning every year for 10 years is probably about right - can you name more than 5 or 10 funds which have achieved it?

Okay, they might have a weak year, but the probability is still low, assuming no special powers on the part of the fund manager and her team. That very crude analysis ignores the degree by which some funds consistently beat the average.

Some funds can 'win' by large amounts consistently and by betting big on markets going up, they'll prevail in the long long term because markets do generally go up rather than down over 10-20 year periods. But this is a function of them adopting a particular strategy and risk profile.

For example, take the "mixed asset 20-60% equity' sector. If there was a fund manager that simply held 55-59% equities at all times, over a 40 year period he will generally outperform one that simply held 22-23% equities at all times, even if he doesn't beat the one which is both truly flexible and consistently able to call it right, if such a fund exists. So the boring 55-59% fund is seen as a better long term result and a "win" most years.

Does this consistent outperformance of sector peers mean that he is a star manager and his very existence shows that quality management can prevail most of the time? No, it didn't really prove that. It just turned out to be the one to get if you wanted the risks and rewards of bigger equities, which quite possibly you did, if you could handle the heavier losses in the negative years and weren't going to need to pull your money out at some point along the way.

BananaRepublic wrote: »

Many platforms such as You invest have fund comparison tools. My funds were mostly Europe excluding UK. The ones I can remember are Jupiter European, Henderson European Selected Opportunities and Threadneedle European Select.

Just curious, if your six funds were so great and had a reliable track record of beating their sector year in year out, why would you no longer be using them and only remember the names of half of them?

Also, you mentioned most of them were Continental Europe focused. Was there a particular reason you were investing so heavily in Europe as opposed to elsewhere, and do you think it's likely to be true that other markets have the same qualities in terms of easily being able to find managers that consistently outperform without being materially riskier or heavily geared to particular sectors? -e.g., we've heard it said that USA largecap is a tougher market to crack in terms of competition and a mature market with high quality research and information available to all.