It's conventional wisdom in the financial media that the best way to invest in mutual funds is to buy "good" funds (however that is defined) and hold them for many years. Upgrading rejects that notion, preferring to rotate among different funds as they demonstrate upward performance momentum compared to their peers. Which approach makes the more sense?

Consider this sports analogy I introduced many years ago.

One of the most remarkable athletes in Olympic history was an Ethiopian named Abebe Bikila. He became an international sensation when he won the 1960 marathon, shattering the old Olympic record by almost eight minutes while running the entire 26+ mile race barefooted.

However, Bikila wasn't the only big track story to come out of the 1964 Olympics. The USA's Bob Hayes (pictured above) burst onto the national scene with two golds. He won the first one in the 100 meters where he set a new Olympic record and earned the title as the "world's fastest man." The second was for his stunning performance as the anchor in the 400-meter relay where he entered the race with the U.S. team in fifth place, and in a remarkable 8.6-second sprint, raced to a record-shattering gold-medal finish. Nearly 20 years later, the Los Angeles Times called it "the most astonishing sprint of all time."

The conventional wisdom is that you should seek out the Abebe Bikilas of the fund world, the long-distance runners. But sometimes you need sprinters, and Upgrading lets us field the type of runner best suited to the current market environment.

Our performance-momentum rankings, which we rely on to guide our Upgrading fund selections, are essentially a reflection of the kind of stock market "race" we're experiencing. When the market is trending up, it's a sprint race. We want our recommended funds to be relatively more aggressive, to be sprinters. By not holding back and taking on greater risk at a time when the market is rising, their performance will move them up the momentum rankings. At times like these, when we replace a fund that's fallen out of the top 25% in its risk category (or as we say, has fallen below the quartile), we look at the top of the momentum rankings and who do we find? These sprinters! It's not that we go looking for these types of funds to recommend; it's that they select themselves by rising up in the rankings.

When the market is trending down, the race of the moment is more like a marathon. A different group of fund managers do well in that kind of competition — the long-distance runners who know how to pace themselves. They tend to be the more conservative ones who try to control risk through more value-oriented strategies.

When the market bottomed out in mid-2010, a rally began that lasted about nine months. Upgrading soon moved us into the relatively aggressive, sprinter-like funds. That was the dominant nature of the "team" we had on the field. However, after reaching a post-financial-crisis high in late April of 2011, stocks began a five-month slide. As a result, our sprinters gradually faltered in the momentum rankings, and the more conservative marathoner-like funds began to rise. During the late summer and fall months, we added five such funds to our recommended list, and, as you might expect, four of the five had the lowest "relative risk" scores in their peer group at the time they were added.

What followed was unusual. Not long after our Upgrading guidelines had us sell many of our sprinters and replace them with long-distance runners, the stock market's decline was over. Trend changes usually don't happen so quickly, but it was already time to sprint again. From the October lows through March, the market rallied about 30%. This led to our once again reshuffling our lineup, retiring many of the marathoners and bringing in some fresh sprinters.

At the end of March 2012, several of the remaining marathoner funds in our Upgrading portfolio had fallen below the quartile cutoff point, but we aren't selling them this month and here's why: The pace of the sprint slowed as the market weakened in early April. In that environment, our marathoner funds were given new life. Their less-aggressive pace was rewarded with improved performance and it was just enough to move them all (as of mid-April when we made our final buy/sell decisions) comfortably back above the quartile cutoff. That's why we're keeping them for now.

Here's the takeaway: Upgrading is a continual process of adjusting our fund lineup so as to field a team especially suited to the kind of market environment we're competing in. It doesn't do this perfectly or necessarily quickly. But it does it sufficiently well to bring us market-beating returns over the long haul. But you have to stay in the race and compete to win the prize.