You’ve probably heard that past performance does not guarantee future performance. By law, every investment product is required to carry that disclaimer. And to a degree, it’s a helpful word of warning. To a degree.
It’s absolutely true that long-term past performance has no correlation with future performance. Picking a mutual fund based on how it’s performed over the past five or ten years is like making a mid-season prediction about which team will win this year’s World Series based on its past five to ten seasons.
But short-term past performance correlates very strongly with future performance. Isn’t this year’s World Series champ likely to be the team that’s playing best this season?
The fact is, short-term past performance tends to persist. Whether looking at sports teams or mutual funds, momentum typically continues, at least into the short-term future. That’s why objective measurements of momentum are at the heart of SMI’s market-beating strategies.
It’s a simple idea. With simply outstanding results.