Analytics Stories

CHAPTER 22Does a Mutual Fund's Past Performance Predict Future Performance?

In many aspects of life, we hope that we can use past performance to gain insight into future performance. Sometimes past performance does not help us accurately predict future performance. For example:

• On October 19, 2019, the last place football team in the Big Ten West division (Illinois) upset undefeated Wisconsin (24-23). The oddsmakers predicted Wisconsin to win the game by 31 points.
• In November 2007, Barack Obama was given only an 8% chance of winning the 2008 presidential election (see understandinguncertainty.org/node/222), and the rest is history.
• In late 2007, the International Monetary Fund (IMF) predicted 4.75% world economic growth in 2008 (www.imf.org/en/News/Articles/2015/09/28/04/53/sores1017b). As we know, the worst recession since 1929 began in 2008.
• In 2000, New England Patriot QB Tom Brady was selected 199th in the NFL draft. I don't think any of the 198 players drafted before Brady had a better career than Brady. According to Pro-Football-Reference.com's measure of career success (Career Approximate Value) (www.pro-football-reference.com/leaders/av_career.htm), nobody in NFL history had a better career!
• In 1980, the prestigious consulting firm McKinsey predicted that by the year 2000, the United States would have 900,000 mobile phone subscribers (see digital-stats.blogspot.com/2014/07/mckinsey-company-projected-that-there.html). In 2000, there were actually 109 million mobile ...