TITLE

The Subtle Influences of Past Performance

PUB. DATE
November 2003
SOURCE
Journal of Financial Planning;Nov2003, Vol. 16 Issue 11, p28
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Focuses on the influences of the past performance of a mutual fund, manager or asset class to the outlook of such investments. Asset management companies advertise not just to retail investors, but also in professional trade publications. Believing that marketers choose not to waste money, it its presumed that they are allocating their money in that way because it generates the best performance. Asset management companies reinforce the importance of past performance driven by commercial instincts. The media bias extends to asset classes as well as individual managers. There are some behavioral tendencies that advisors impose on themselves. Mutual funds provide a good example. By extension, the fixation of the media and many investors on past performance is probably overdone, but not wholly without merit. It is a mistake for advisors to sort through only the investments that passed the past-performance beauty pageant, given the many other factors that influence performance. Advisors need to take a firm hand with clients and even re-think their own practices. Just because an investment has done well does not mean it still makes sense in the future, The question is whether they engage in day-to-day practices that undermine the principle either in their own analytical work, or in their interaction with clients.
ACCESSION #
11272564

 

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