People have subjective initiative and cognitive bias, and another reason for investors' failure is to chase performance. Because there is also cyclical performance between different models, it is easy for investors to fiddle back and forth between strategies. I've written an article before about how investors like to chase fund managers who have performed well in the past.
In the first three years of replacing fund managers, the cumulative excess returns (over benchmark) of those fired managers were indeed low, only 2.03%; By contrast, newly hired "Star" managers have had excess returns of 11.55% over the past three years. But the awkward thing happened: three years after investors switched managers, managers who were fired were rewarded better than those who had just been hired. In most cases, blindly chasing strategies and funds with good performance will not pay off.
Take, for example. Svenson's portfolio and Toby's portfolio have the exact annualized yield, the same sharp ratio, and the same maximum withdrawal in 45 years of history, and the correlation between the two is 90%. It can be said that the two are very similar in performance.
But these two strategies, if measured in years, are also relatively good and evil. For example, in the three years from 1996 to 1998, Svenson beat Toby every year, winning 10.57% in three years. If the Toby portfolio is held in the past three years, it must be difficult to compare with the Svenson portfolio, and it must be better if it is the model of the head of Yale.
All right, change! If you abandon the Toby band at the end of 1998 and switch to the Svenson band, I'm sorry, I'll be slapped in the face. In 1999, Toby's portfolio beat Svenson by 10%, suddenly earning back all the losses of the previous three years, which flipped back and forth, losing 10% of potential earnings. It's really tiring to run in search of the best-performing model.
Earnings performance of Svenson's portfolio and Toby's portfolio in different periods
The best model sounds great, but in practice, there is no best model, only the one that suits you best and the one you believe in most.
The cost of underlying assets is too high.
Most investors should use public funds or ETFs in the secondary market to allocate wholly-owned assets, which is simple and convenient. However, when investors are looking for underlying targets, they must pay attention to the problem of fund management fees.
Here is not to ask everyone to blindly invest in funds with low management fees because, after all, there are still passive funds and active funds in the market (in addition, there is a premium, tracking error, liquidity, and other perspectives). If the concept and management ability of the fund is suitable for the higher management fees of the fund, then we are also convinced.
Always looking at the bright sight of things will make things more desirable and exciting. If you would like to have something special to make more profits, you shouldn't depend on these models but try to find some things that are more suitable for your own business. Hopefully, my advice will give you some inspiration.
