It is said that there are three remaining groups of people in the world who still believe that markets do not work: the North Koreans, the Cubans, and the stock pickers. We are inclined to agree. However, too many investors still spend their time pondering the next hot stocks or wondering whether they should hire the latest stock picking “guru” instead of focusing on factors within their control.

These attempts invariably end in failure. The reason is simple: markets work. Stock prices efficiently reflect new information, and at any given time provide the best estimate of a firm’s economic prospects. Nevertheless, high-priced “professionals” do their best to convince us that the market has “mispriced” assets, and furthermore that they know the “correct” price. Alas, despite our instincts to believe otherwise, there is no Tiger Woods of stock picking, because there cannot be. Anyone who claims to be smarter than the market bears a huge burden of proof.

That conclusion is supported by reams of empirical evidence. But one need not rely on sophisticated econometric models to see the truth. The tables below display the subsequent performance of the “hot” actively managed mutual funds from the most recent, and the earliest 5-year spans examined in a recent study. All 5-year intervals in between also yielded dismal results, as did going “deeper” into the list (i.e. the hottest 30 funds).

Also in This Issue:

Quarterly Review of Investment Policy
REITs: A Valuable Portfolio Component
Newly Recommended Funds
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield