The New Year is often a time when investors reassess their investment choices and after a difficult 2011, some investors may find themselves in the market for a new investment advisor or strategy for 2012. But what’s the best way to assess your investment strategy or to select a new one?
In a January 3, 2012 MarketWatch.com post, The First Shall be Last, Mark Hulbert what he’s learned in his 30 years of tracking 600 advisors in his monthly Hulbert Financial Digest: don’t select a strategy based on last year’s performance.
“The portfolios that are at the top and bottom of the one-year rankings are almost always ones that have incurred extraordinary risk,” Hulbert writes. “Though once in a long while lightning will strike twice, the far more certain bet is that extremely risky strategies will eventually lose big.”
Hulbert provides some clear examples of why one-year records aren’t an effective predictor of a strategy’s future success. He pointed out that the best performing portfolio in 2010 gained 139% and lost 54% in 2011.
“I used to think that five years was long enough to separate out those with genuine ability,” Hulbert explains, “but I have since concluded that it has to be far longer than that. I now recommend focusing on performance over at least 15 years.”
As of the January 2012 issue of the Hulbert Financial Digest, NoLoad FundX was among the top five performing investment newsletters for the last 15 years. Among mutual fund newsletters, NoLoad FundX was the very top performer for the 15 year period (unadjusted for risk).