Embrace the Market by Not Trying to Outguess the Market

An Efficient Machine
The competitive landscape makes the search for future winners a formidable challenge. Confronted with so many fund choices—and lacking an investment philosophy to inform their search—some investors will resort to using track records as a guide to selecting funds, reasoning that a fund manager’s past outperformance is likely to continue in the future. Does this assumption pay off? The research offers strong evidence to the contrary. 

The market is an effective information-processing machine. Each day, the world equity markets process billions of dollars in trades between buyers and sellers—and the real-time information they bring helps set prices.

It’s About Time In, Not Timing
The market’s pricing power works against mutual fund managers who try to outperform through stock picking or market timing. As evidence, only 19% of US-based equity mutual funds and 11% of fixed income funds have survived and outperformed their benchmarks over the past 20 years.

What to do? Since past performance offers no guarantee of a successful investment outcome in the future, investors should consider other variables, including a mutual fund’s underlying market philosophy, investment objectives, strategy, and total cost. Long-term growth is achieved through long-term discipline