Sunday, May 27, 2007

Selecting winning funds

In his book, John Bogle said that it is difficult to select the winning funds.

He analysed 355 funds that existed in 1970. By 2006 (36 years later), the results are:

* 223 funds did not exist anymore (in most cases, the investors left the fund)
* 60 performed worse than market benchmark by more than 1%
* 48 performed within 1% (plus or minus) of benchmark
* 15 performed 1% to 2% better than benchmark
* 9 performed more than 2% better than benchmark

It is difficult to pick the 24 funds out of 355 funds. Most of these funds performed well when they were small. When they became big, their performance dropped.

There is no certainty that these 24 funds will perform well in the future. In fact, it is likely that they will not.

Lesson: invest in low cost, indexed funds.

3 comments:

Anonymous said...

There are also evidences that indexing is a very competitive investment strategy for the European and the global markets:

Check out this easy listening talk given by Burton Malkiel to retail investors in Australia.

--anonymous coward

Anonymous said...

Hi Mr Tan, I have read your article on Selecting Winning Funds and Fair Dealing at Wobao and what you wrote rings in tandem to my gut feels on local funds.. The exceptional hidden management fees by Dayspring despite of it poor performance also irks one of the ugliness of capitalism and unethical exploxit in financial engineering..
It seems that investing in govt bonds is more appealing.. Do you have any advise? Is govt bonds capital guaranteed and how do we buy that given the opportunity is over (I last seen one advertised with 3% or more dividend return).

Rgds, Whitefox

Anonymous said...

Market Timing is important. Knowing when to sell your fund is "Master". Knowing how to Buy is just "Amatuer".

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