Mutual funds aren't perfect; they are almost perfect, and that word makes all difference. Because of their imperfections, most funds underperform the market, overcharge their investors, create tax headaches, and suffer erratic swings in performance. The intelligent investor must choose funds with great care in order to avoid ending up owning a big fat mess.
Financial scholars have been studying mutual-fund performance for at least a half century, and they are virtually unanimous on several points as below
Your chances of selecting the top-peforming funds of the future on the basis of thier returns in the past are about as high as the odds that Bigfoot and the Abominable Snowman will both show up in pink ballet slippers at your next cocktail party. In other words, your chances are not zero-but they're pretty close.
But there's good news, too. First of all, understanding why it's so hard to find a good fund will help you become a more intelligent investor.
Second, while past performance is a poor predictor of future returns, there are other factors that you can use to increase you odds of finding a good fund.
Finally, a fund can offer excellent value even if it doesn't beat the market-by providing an economical way to diversify your holdings and by freeing up your time for all the other things you would rather be doing than picking your own stocks.
- The Intelligent Investor, Benjamin Graham
- The Intelligent Investor, Benjamin Graham
