Rational Advisor

The old adage on every piece of marketing literature “Past Performance Does Not Guarantee Future Results”, is not your average, legal disclaimer. The comment carries an important message for investors and their advisors. And one that is forgotten by almost all investment specialists. Oddly enough this phrase is perhaps the most accurate fortune teller for the markets.

There’s been many studies over the years that have shown that managers who’ve had strong returns in the past may actually incur poorer future returns.

In 1991 - it was the AGF Japan Fund, that had excellent multi year returns, only to be followed by miserable returns

Yet what do you think “smart” investment advisors in 1991, with their computers loaded with Paltrak and other performance tools were telling their clients to buy - AGF Japan.

In 1993 - it was the Altamira Equity Fund - with Frank Mersch great performance numbers - followed by many years of poor performance, and an equity trading scandal

What do you think the “smart” media was telling its public to purchase….

In 1995, after a high double digit return, it was the Dynamic Commodities heavy portfolios that had their limelight (much like today) and they were followed by miserable years

What do you think the “genius” advisors were recommending to their clients - Yep, you guessed it, the same thing they are doing today. For some reason, these bright sparks think it is different this time!

In 1998, it was the AIC Advantage Fund, with Financials etc - Buy Hold and make Michael Prosper, was the motto. Followed by terrible years - it’s lost billions in assets to date

But, what do you think the “brainac” advisors were telling their clients to add to - Yep, you guessed it

Is it any wonder, the public does not feel comfortable with advisors - who choose the latest fad, based on their “Due Diligence” and deep analysis - all based on past performance.

it makes me sick, that the investment public trusts these so-called “Einstein-like” advisors.

Manias, and mini-manias, do occur and they are fed by exceedingly high returns which seduce unsuspecting investors, prodded on by their advisors into doing things that really should stay in Las Vegas. After all, that’s where throwing one’s money away is to be expected.

What should these advisors be doing is understanding that “Past Performance Does Not Guarantee Future Results”. And to explain that every investment, no matter what it is will have negative periods, and understand and demonstrate what that worst investment return could be.

To also explain that although past returns are not predictable, that good investments do tend to perfrom based on the underlying investments growth. ANd most of these are based on sound companies that investors use every day - like tooth paste, like soap, like shaving cream, like medical companies, like banks…

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