Believing Performance Claims: A Triumph of Hope Over Experience
by Mark Hulbert
I am constantly bombarded with questions about investment advisers that my Hulbert Financial Digesthas not been monitoring.
Inevitably, the inquiries focus on alleged performance that is tantalizingly good—so good, in fact, that even if actual performance were only half as good, it still would justify our immediately allocating all our investment portfolios to following the adviser or strategy in question.
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My reply is always the same: Don’t believe it.
To be sure, it is theoretically possible that the adviser or strategy over which I am throwing cold water has discovered the key to understanding the financial markets once and for all. More likely, however, is that the adviser is analogous to Joe Granville, editor of the Granville Market Letter, who called several market turns correctly in the early 1980s, bragged that he should receive the Nobel Prize in economics for unlocking the mystery of the markets, and subsequently became the worst performer of any the HFD has been tracking over the last three decades.
Of course, I wish that the HFD were a large enough organization to track every adviser, strategy, software program, day-trading system, and so forth that exists. In that case, you could compare any conceivable advertising claim to what the HFD has independently been able to verify.
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