>> it is rational to use past performance as a predictor of future performance
No, it isn't and all the funds explicitly warn you that you shouldn't do it.
The point is, funds perfomance is just a bad case of "survivor bias". Many funds are created, most of them tank and you never hear about them again, but few get lucky, make some remarkable return and get their 5 minutes of fame.
There is also one more problem with the "successfull" funds:
let's say that some fund manager actually has a secret strategy that works. At the begining, he or she just takes some initial money from investors and invest it in whatever the secret strategy suggests.
Unfortunately as soon as fund becomes popular, and people start putting more and more money in it the strategy gets thrown through the window. Why? because if you put your money in a fund that fund MUST use your money to buy stocks. Even if manager thinks that this is a bad time for buying.
Therefore, as soon as fund becomes popular it stops being strategy-based and becomes "bubble based" :)
No, it isn't and all the funds explicitly warn you that you shouldn't do it.
The point is, funds perfomance is just a bad case of "survivor bias". Many funds are created, most of them tank and you never hear about them again, but few get lucky, make some remarkable return and get their 5 minutes of fame.
There is also one more problem with the "successfull" funds:
let's say that some fund manager actually has a secret strategy that works. At the begining, he or she just takes some initial money from investors and invest it in whatever the secret strategy suggests.
Unfortunately as soon as fund becomes popular, and people start putting more and more money in it the strategy gets thrown through the window. Why? because if you put your money in a fund that fund MUST use your money to buy stocks. Even if manager thinks that this is a bad time for buying.
Therefore, as soon as fund becomes popular it stops being strategy-based and becomes "bubble based" :)