Every January, the same routine plays out on Wall Street. Investors scan the year-end leaderboards, spot the hottest mutual fund or ETF from the prior year, and decide that is where their money belongs. After all, if a fund just crushed the market, surely its manager has found the “secret sauce,” right?
Unfortunately, this is one of the most common and costly “Stupid Investment Tricks” in the book.
The Mirage of Momentum
Markets are hyper-competitive and forward-looking. By the time a fund tops the performance charts, much of the advantage that drove those gains has already been realized. What investors are often buying is not skill, but timing—and in the markets, lightning rarely strikes the same spot twice.
S&P Dow Jones Indices tracks this phenomenon through their SPIVA (S&P Indices Versus Active) reports. Their data reveals a cold, hard truth: outperformance is not just rare; it is fleeting.
According to the SPIVA Persistence Scorecard (Year-End 2024), the odds of a top-tier manager staying at the top are staggeringly low:
Large-Cap Leaders: Only 2.4% of top-performing large-cap funds maintained their leadership position five years later.
Mid-Cap Managers: The numbers get even grimmer, with less than 1% maintaining their status over the same period.
The Coin Flip: Statistically speaking, you would have better luck picking a fund by flipping a coin than by choosing last year’s winner.
The “Investor Gap”: Why You Earn Less Than the Fund
There is a massive difference between Investment Returns and Investor Returns.
When you chase “last year’s winner,” you are often buying high. When that fund inevitably reverts to the mean (or underperforms), frustrated investors sell low. This cycle of “performance chasing” creates a Performance Gap, where the individual investor earns significantly less than the fund’s published 10-year track record.
The Reality Check: A strategy that relies on repeatedly identifying tomorrow’s top fund isn’t a strategy at all—it’s a lottery ticket.
Build a Garden, Not a Highlight Reel
None of this means active management is inherently “bad.” It simply means that recent performance is a distraction, not a data point.
A sound investment policy—what we call the Tax-Out™ approach—focuses on the variables you can actually control:
Your Goals & Cash Flow: Does this investment serve your specific $25,000/month Restylement™ goal?
Tax Efficiency: Is the “winner” you’re chasing going to create a massive tax bill that eats your gains?
Personal Economic Security: Is your portfolio diversified enough to survive when the “hot” sector of 2025 goes cold in 2026?
The “Watching Paint Dry” Philosophy
In the world of high-stakes investing, I like to say that your portfolio should be as exciting as watching paint dry. While that doesn’t make for a thrilling headline, it is the secret to long-term wealth. True success isn’t found in chasing yesterday’s “garden in bloom”—it’s found in the disciplined, quiet work of tending to your own soil, year after year.
Stop chasing the highlights. Start building a plan.