Past Performance Does Not Indicate Future Gain?


This is a general maxim for all investors. It is obviously true that there is no such thing as a crystal ball that tells the future. That does not mean that past performance is not important. In evaluating index funds, past performance helps you evaluate the degree of tracking errors with respect to the index it is mimicking.

Lets say a stock with healthy expense ratio/cash reserve outperforms its sector consistently for decades. If its earning's growth is in tandem with its performance, I don't see the reason why these are not indications of an attractive investment. It all boils down to rationalizing the reason for the performance. If you incorporate an analytical approach of a stock fundamentally with the data of its past performance, you can acquire more info, to make a more rounded decision.

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