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Past performance is not an indication of?


KinAlberta
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The joy in generalizations... The following statement is somewhat true in the short run for 90-95%+ of mutual funds, so is it also true for 90-95%+ of stocks? Is this statement true in the longer run for either stocks or mutual funds? 

 

 

"past performance is not an indication of future results."

 

 

 

Also, on a similar note, is your approach to value investing based on that regression to the mean where past performance is an indicator of future results (overcoming temporary resolvable problems), or some other approach value approach?

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The devil is in the details.

 

Great business and jockey investing is based on belief that past results will continue.

Risks:

- The past results won't continue because business, market, something else changes.

- You pay too high price for great business and your stock results are crappy even though business results continue just fine.

 

Underpriced netnet, cigar butt investing is based mostly on belief that past results won't continue or they won't catch up with you fast.

Risks:

- The past results continue and stock drops even more

- You pay cheap price, but not cheap enough, so even though business results change/improve, you don't get good results.

 

Edit:

Glitch investing: investing based on belief that current bad results are a glitch and will go back to good results soon.

Risks:

- The bad results continue

- Price... again. :)

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