Paul Sullivan writes this week in his Wealth Matters column this week about a basic rule in investing that many people don?t heed ? ?past performance is no indication of future results.?
How often does word get out about a particular fund?s stellar performance? Investors pile in. But what happens when the fund goes down? Is that only temporary or a portent of a deeper decline? What should investors do?
A new report from Barclays Wealth and Investment Management takes the question a step further and asks whether investors can identify fund managers who are going to do well in the future. If not, the report concludes, investors should be in an index fund or with a firm that can identify the managers with potential.
One of the authors of the report, David Romhilt, the head of manager research and selection at Barclays, said active managers generally went through four phases: start-up, growth, maturity and decline. He told Mr. Sullivan that he tried to identify the manager?s growth phase, where they?ve had some success but not so much that money has poured in and changed how they invest.
What do you think of this advice? Have you fallen victim to the idea that the past predicts the future? Tell us about your experiences in the comment section below.
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