Investing Myths - 1

capital0ne

Past performance is no guide to the future.

To adapt the old chestnut, there are three great lies in life: the cheque is in the post; I’m
from the government and I’m here to help you; and past performance is no guide to the
future. A moment’s thought shows you how silly the last statement is. Were it true, we
could abolish examinations, references and almost every other means of distinguishing
between the options open to us.

Past performance is not a perfect guide to the future, but it’s the only one we’ve got and it
can give us useful information. Do we want to invest in small companies? Then we go for
proven small company managers. Do we want yield? Then we go for income managers
with good track records. And so on.:D

Prism

Agreed. I picked most of my current funds by looking into the history of the funds and their managers before looking into the type of companies they invested in and if I would invest in those companies myself. The past performance definitely guided me to these funds and I have done well from them.

I do understand why this statement has to be simple though whereas the reality is a little more complex

fun4everyone

I take that statement to warn people you can't literally expect the same. IE if one fund went up 80% in 3 years, it cannot be expected to do the same over the next 3 years.

As already stated the reality is that it is complex and long term trends can be seen from past performance. Stuff like smaller companies doing better over the long haul, emerging markets doing better over the long haul, certain active fund managers adding performance and so on.

BananaRepublic

capital0ne wrote: »

Past performance is no guide to the future.

To adapt the old chestnut, there are three great lies in life: the cheque is in the post; I’m
from the government and I’m here to help you; and past performance is no guide to the
future. A moment’s thought shows you how silly the last statement is. Were it true, we
could abolish examinations, references and almost every other means of distinguishing
between the options open to us.

Past performance is not a perfect guide to the future, but it’s the only one we’ve got and it
can give us useful information. Do we want to invest in small companies? Then we go for
proven small company managers. Do we want yield? Then we go for income managers
with good track records. And so on.:D

Your past performwnce is clearly a good guide to your future performance. I look forward to more silly threads.

Your second paragraph sums up what I suspect most intelligent people believe. But past performance is not an accurate guide, and needs to be interpreted carefully.

DiggerUK

“Past performance.....” is a get out of jail free card that translates as, ‘well...I did warn you, now sod off’

The claims that investing in equities long term is safe and solid, and all the downs will eventually become ups, is a trick and a half. This trick is accomplished by use of the historic tables of bourses.....which always go up over time .........of course.

As the devil is in the detail, and that detail is so visible, it has to be pointed out how the trick is done. All the losers and underperformers are weeded out, leading to an ever inflating valuation of those markets.

Cue the usual suspects..._

Linton

The adage about past performance being no guide to future performance is most commonly applied to funds within a given sector. A 1st quartile fund 1 year can often be a 4th quartile fund the next. Look at the results from a certain well known income fund manager.

It is less applicable to individual sectors and shares which can be more affected by long term trends.

Sometimes a fund manager with a focussed style can latch onto a long term trend with spectacular results (eg Andrew Bolton with Fidelity Special Situations in the 1990s and also possibly Terry Smith with Fundsmith more recently) but this is rare.

badger09

BananaRepublic wrote: »

Your past performwnce is clearly a good guide to your future performance. I look forward to more silly threads.

Your second paragraph sums up what I suspect most intelligent people believe. But past performance is not an accurate guide, and needs to be interpreted carefully.

I don't. And I suspect I'm not the only one:)

Biggles

badger09 wrote: »

I don't. And I suspect I'm not the only one

I think there have been enough already. I dread 'Investing Myths - 2'.

A_T

Biggles wrote: »

I think there have been enough already. I dread 'Investing Myths - 2'.

suspect it depends on whether it's a dismal day or not

TBC15

Oh, it's such a dismal day
I'm glad I spend it with you
Oh, such a dismal day
You just keep me hanging on
You just keep me hanging on