Thanks for commenting on my post.

To summarize, I recommend diversifying widely, using low-cost, tax-efficient, mutual funds that follow a passive approach. The mutual funds do not try to beat the market, so they don’t. Therefore it would not make sense to choose them on the basis of performance.

When I was in graduate school, my Economics professor said that we should start with a theory and then test it with data. For 45 years, economists have studied many markets over various time periods. The conclusion is that markets are “efficient” in that it is not possible to identify mis-priced securities and take advantage of the mistakes to earn superior returns. That makes perfect sense given the large number of market participants and the wide availability of information.

One can study and understand the properties of chemicals but still not believe that someone can turn lead into gold. Assets have properties and an historical record going back decades, if not centuries. For example, it makes sense that stocks have higher expected returns, because they have more risk. Investors would not choose stocks over bonds unless the expected returns were higher. But “expected” does not equate to “realized” every year.

With thousands of mutual funds, some will do better than average. Mutual fund managers may have simply been lucky for a few years. Trust me; there is no statistical evidence of persistence of superior performance of mutual fund managers.

The SEC makes them say, “Past performance is no guarantee of future results” for a reason. Because it is true.

Roger

Let me get this straight. In your opinion, past performance is of NO importance whatsoever in choosing an individual investment, i.e. a mutual fund. However, past performance is a factor in overall asset allocation?? In your past postings you stated that you don’t look at past performance when picking mutual funds, that you only look at the expense ratio. Am I understanding you correctly?