Switch on the the financial news on television, or pick up the money section of any newspaper, and you’ll see there are plenty of supposed experts giving their opinion as to what investors should do.
But the track record of these market gurus is dismal. Year after year, their forecasts are inaccurate, and very rarely are they held to account for their failure to predict the future.
But, you might be thinking, what about those “star” fund managers who manage to outperform the market? Surely all I need to do is to find one of those to management my money for me?
Unfortunately, it’s not that simple.
Research has consistently shown that only about 1% of fund managers beat the market consistently over the long term. — And they’re almost impossible to spot in advance.
It takes 22 years of data to be 90% certain that a manager’s outperformance is genuinely down to skill rather than luck.
And even those few managers who DO outperform generally recoup for themselves any value they add in fees, leaving nothing for the investor.
As for hedge funds, the evidence is that they perform no better, and they’re far more expensive.
Every year hundreds of hedge funds and mutual funds are either closed or merged with another fund because they perform so badly.
The second step to successful investing therefore is to beware of market gurus.