This is the money quote (no pun intended): "These results highlight the fickle nature of assessing relative performance over short horizons."
How many times have you told a fund manager, "Gee your fund lost 10% last year when the S&P500 was up 8%, how did you manage that?"[1] Only to move all your money into some other fund and have it get worse returns than the one you moved your funds out of? The point the article tries to illustrate is that evaluating a fund's strategy should be separate from evaluating a fund's returns. And if its strategy is sound, then even if it under performs other metrics over a shorter term, it out performs over a longer term.
And yet there aren't really any investors who are willing to 'take it on faith' and stick around for 10 years to see if their strategy is sound.
[1] Ok probably not a lot but I did get to ask one this question. They did not respond effectively.
How many times have you told a fund manager, "Gee your fund lost 10% last year when the S&P500 was up 8%, how did you manage that?"[1] Only to move all your money into some other fund and have it get worse returns than the one you moved your funds out of? The point the article tries to illustrate is that evaluating a fund's strategy should be separate from evaluating a fund's returns. And if its strategy is sound, then even if it under performs other metrics over a shorter term, it out performs over a longer term.
And yet there aren't really any investors who are willing to 'take it on faith' and stick around for 10 years to see if their strategy is sound.
[1] Ok probably not a lot but I did get to ask one this question. They did not respond effectively.