6. Objectivity Beats Subjectivity: Why Short-Term Performance Momentum Matters in Investing

You’ve likely heard the disclaimer, “Past performance does not guarantee future results.” This warning, required by law on every investment product, is wise to heed — but it doesn’t tell the full story.

While it’s true that long-term past performance shows little correlation with future success, short-term performance often paints a clearer picture. Choosing a mutual fund based solely on its past five or 10 years of returns is like predicting this year’s World Series winner based on the most championships won in history. A team’s historical success, like the New York Yankees’ impressive legacy with 27 championships, doesn’t guarantee current season victories.

For example, in 2024, the Los Angeles Dodgers won the World Series after an outstanding season, despite having only 7 championships at the time compared to the Yankees’ 27. This demonstrates that short-term performance, not historical achievements, is often a more reliable indicator of success.

Similarly, focusing on short-term performance in investing can yield more accurate predictions. A mutual fund that has demonstrated recent upward momentum is more likely to continue its trend in the near term. This principle of “momentum investing” forms a key part of SMI’s strategies, which rely on objective, data-driven measurements to identify trends and maximize potential returns.

The result? A straightforward, momentum-based approach that has consistently delivered outstanding results.