past performance may not be indicative of future results.......Bogle shows how today's morningstar five star funds are tomorrow's losers. But expanding on those thoughts about past performance, we are all basing our investment choices on prior returns when you really think about it. We invest in 60% stocks/40% bonds because historically stocks have had better performance than bonds. We invest 50% or more in the U.S. because it has had higher historical returns than foreign investments......i doubt we would all be investing so heavily in the U.S. if foreign stocks had better long term historical returns than the U.S. even if the fees for investing in foreign stocks was a little higher.
Let's look at everyone's FAVORITE personal finance guru, Dave Ramsey. His broken record speech is to invest in growth stock mutual funds with loooooong track records. I do not like his advice at all for many reasons, but can we really knock him for shelling out this advice based on past performance? His long term definition is something like 30 years.....can we really say that is horrible invest advice when we are all basing are investing decisions on historical returns? (just a longer time horizon). Furthermore, if we use a longer time horizon, say 1000 years...we have seen the rise and fall of many hegemonic powers- Rome, Spain, U.K, etc. during that time. Many top academics, i.e. Noam Chomsky, state that we are a hegemonic power in decline and obviously no super power has been able to sustain that status indefinitely. therefore is it really wise to invest the bulk of our assets in a declining economic power based on it's superior stock market past performance during its rise to power over the last 100 years?
Also, consider the traditional market-cap weighted index funds. When Google went public it was only a tiny fraction of an total stock market index but today it is a major part of that index in comparison. Companies that have grown to the largest size are weighted the heaviest in a market-cap index, therefore it is naturally placing heavier emphasis on business's with the strongest past performance. Logically then, a traditional market-cap weighted index is a big bet that past performance will be indicative of future returns.
I believe we are all investing in marketable assets based on past performance and should not be so quick to admonish other's that are data mining and investing in such a way to get higher returns..........all of us investing in stocks or bonds are data mining and have expectations based on those assets past performance.