Chasing Investment Returns

Chasing Investment Returns


Don't make the costly mistake of chasing investment returns (or performance).
When deciding where to put your money, what often seems "hot" is certainly not. The year 2000 is a prime example.

One of the biggest mistakes that investors make is to chase performance. Whether it be changing investment advisors, switching newsletters, transferring between funds, or purchasing a new fund, the common goal for the investor is to be in the hottest fund. Unfortunately, they're often in the wrong place at the wrong time.

To obtain a better understanding of how painful it can be to chase returns, let's turn back the clock to January 1st, 2000. Imagine that you are sitting at home analyzing 1999 returns (yes, grateful you have power and the world did not blow up due to Y2K). The biggest winners in 1999 were Japan funds and Technology funds. After screening for the top performing funds, you decide to go with these five:

Warburg Pincus Japan Small Company (WPJPX) Up 328.7% in 1999
MAS Small Cap Growth (MSCGX) Up 313.9% in 1999
Credit Suisse Inst.
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Japan Growth (WPIJX) Up 279.9% in 1999

Monument Internet (MFITX) Up 273.1% in 1999

Amerindo Technology (ATCHX) Up 248.9% in 1999

The mere thought of returns like these is mesmerizing! If you could even get a small fraction of these returns on a consistent basis, you could retire early!

Fast forward to Jan 1st, 2001. The old saying, "What goes up, must come down" is a painful reality for you. Here is what happened:

Warburg Pincus Japan Small Company was down 71.8%
MAS Small Cap Growth dropped 23.1%

Credit Suisse Inst. Japan Growth shut down and returned assets to investors, but not before it lost almost 60% of its value

Monument Internet tumbled 56.4%

Amerindo Technology fell 63.9%

It may have been easier to stomach these losses if you were lucky enough to have enjoyed the gains in 1999, but you didn't. That's the point.

Does this mean that you should invest in what is out of favor? No. It is simply a display of what could happen to you if you let your desires for huge returns get in the way of rational thinking. Just because an investment did well last year, does not mean it will do well this year.