Consider the stock mutual funds that in a given year rank in the top 25% for performance. On the assumption of pure randomness, you would expect that 25% of them in the second year would also be ranked in the top quartile. In fact, the actual percentage is rarely higher than 20%, Ms. Soe says. The perils of chasing one-year returns are also illustrated by the performance of top-rated investment newsletters. Consider a hypothetical portfolio that each year follows the newsletter model portfolio at the top of the Hulbert Financial Digest’s performance scoreboard for the previous calendar year. Over the last decade, this strategy produced an annualized loss of 7.4%. (See chart.)

— investing newsletters  

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