Chasing last year’s winner can be disastrous

Irrespective of the warnings that past performance is no indicator of future performance many do-it-yourself (DIY) investors seem to use past performance as one of their major criteria in investment decisions.

New research from Morningstar has demonstrated the impact of this behaviour for investors over the past 10 years. They have done this by calculating an “investor return” which is a money-weighted calculation that accounts for aggregate monthly purchases and sales by all of a fund’s investors.

Read more about this research and its impact in this interesting article by Robin Bowerman of Vanguard Australia. (Read more here…)

To me the article reinforces the following points:

  • Don’t rely on past performance figures
  • Don’t chase last year’s winners. Assess future potential.
  • Focus on your personal returns based on the timing of your actual investments. Be objective – maybe your investments have not been as good as you first thought?