A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

HOW THE TOP 20 EQUITY FUNDS OF THE 1970S
PERFORMED DURING THE 1980S
Average Annual Return
1970s
1980s
Top 20 funds of the 1970s +19.0%
+11.1%
Average of all equity funds +10.4%
+11.7%

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In case you think the picture changed during the decade of
the 1990s, the next table shows the top twenty mutual-fund
performers of the decade of the 1980s and the deterioration of
their performance in the 1990s. The results are distressingly
similar. Financial magazines and newspapers will keep singing
the praises of particular mutual-fund managers who have
recently produced above-average returns. As long as there are
averages, some managers will outperform. But good
performance in one period does not predict good performance
in the next.
HOW THE TOP 20 EQUITY FUNDS OF THE 1980S
PERFORMED DURING THE 1990S
Average Annual Return
1980s
1990s
Top 20 funds of the 1980s +18.0%
+13.7%
S&P 500-Stock Index
+14.1%
+14.9%

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Similarly, the best-performing general equity funds during
the 1990s performed worse than the market during the 2000–
09 period—a decade I have called “the naughties.” We find
that the twenty hottest funds earned rates of return during
the 1990s that were well above the return for the market.
These were the “genius” fund managers interviewed adoringly
on CNBC and featured in articles in investment magazines. In
fact, these funds had simply loaded up their portfolios with
New Economy stocks. They had ridden the Internet bubble
up, but when the bubble burst, they collapsed as well. On
average, during the first decade of the 2000s, these funds
performed far worse than the market as a whole. Investors
learned that making 100 percent one year and losing 50
percent the next left them exactly where they started out.