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June 25, 2009


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This is a superb entry!

Most mutual funds have past performances that go back years, but they are rarely managed by the same fund managers. That complicates this in terms of figuring out a fund manager's ability to generate alpha (and eventually, persistence), much less whether they can persist with similar performances into the future.

Plus, yes, a lot of celebrity fund managers have had a hard time. Miller is a perfect example. So is Ken Heebner. Actually Peter Lynch had a hard time towards the end of his career as well, but he also complained about having his hands tied by regulations.

I remember the issue of persistence being brought up over at diehards, but basically, by the time you have enough data to figure out persistence, they're old enough to be retiring. :D

I fully agree with the point on persistence. Unfortunately, I don't think it's something that can be implemented easily.

That said, Warren Buffett is always an interesting case study. Here's a link to a white paper on whether his career's returns are based on luck or skill. (The conclusion was skill.)

Again, great entry. Thanks for sharing!

Article said: "How do we pick a particular mutual fund to invest in? The answer is very simple: Its performance last year, last quarter, or even last month. Of course, advertising helps, too, but "returns-chasing behavior" as it is technically known, pretty much captures our actions when it comes to mutual fund choices. The #1 fund in the country last year in terms of performance will be near or at the top of mutual funds attracting the most new investment dollars."

This is probably one of the dumbest statements I've ever seen written. What a mutual fund did in the past has absolutely nothing to do with what it will do in the future. That goes for any investment or anything in life for that matter. Whoever wrote this needs to do us all a favor and find a new career. Finance isn't this person's specialty.

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