Recipe for Picking Winners: Add Time to a Pinch of the Past
by Mark Hulbert
My nearly 27 years of tracking investment newsletters performances has been premised on the belief that past performance can help us make more profitable choices between various investment advisers. This column supplies yet more evidence in support of that notion. To be sure, as the Securities and Exchange Commission requires all investment advertising to acknowledge, past performance is not a guarantee of future performance. But, by the same token, only the most extreme nihilists would insist that past performance has no relationship whatever to future returns.
For this column, I devised a test to see where we stand in between these two extremes. My test is based on a thought experiment that winds the clock back to October 2002: How would newsletters have done over the nearly five years since then if they had been chosen according to their past performance?
I chose October 2002 because it represented a major market turning point, and junctures as big as that constitute particularly tough challenges for systems based on past performance.
To read more, please become an AAII member or CLICK HERE.