When Good Funds Go Bad
There are several possible causes.
Tim Harford, a Financial Times columnist, wondered "Why Brilliant People Lose Their Touch." He maintains, at least for mutual funds, that the question cannot be answered. "Perhaps [the manager] has lost his touch, perhaps the world has changed, or perhaps he has simply been unlucky. It would be nice to know which, but in such matters the world does not always satisfy our curiosity."
Having looted Harford's topic, I will do likewise with his conclusion. He is mostly correct. The sample size of consistently successful mutual fund managers is too small, and the factors affecting their funds too large, to permit comfortable conclusions. However, I do think we can assess several commonly cited causes. In rising order of probability, they are:
John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.