Despite all the warnings against using past performance as a measure when selecting a manager or fund, investors still do it. Perhaps a different tack is needed to help change this habit.
Let’s try a totally different tack this time. No matter how many times investors are warned that past performance is no indicator of future performance, you, the investor – with much encouragement from the marketing departments of asset management companies – will still revert to past performance as a critical component in manager or fund selection.
We researchers cling to the notion that the more we educate investors with the right data, the more convinced our audience will become to the “rightness” of our argument. We can prove categorically – with all sorts of quantitative and qualitative metrics – that any belief that past performance is a good proxy for manager potential in the future is completely unfounded.
But here is the harsh reality: all that research will do little to change this old habit – investors, consultants and decision-makers will still insist on relying heavily on that past performance.
So, let’s take a leaf from a different branch of analytics: behavioural psychology. Let’s look at some interesting work being done with behavioural change for both substance abusers and patients who cling unhealthily to quack medical theories.
Here a new line of therapy is emerging that is having surprising success – Motivational Intervention (MI). These therapists start with the view that rational answers and scientific or statistical proof mean little to individuals where the flawed messaging of the group is far more alluring to individuals than rational answers and scientific or statistical proof.
The trick to prying individuals away from these harmful affiliations and belief systems is to shift emphatically to nonjudgmentalism, while at the same time helping the individual develop a whole new value and belief system.
This story is from the 25 October 2018 edition of Finweek English.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the 25 October 2018 edition of Finweek English.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber? Sign In
THE HEALTH OF SA'S MEDICAL SCHEMES
As the Covid-19 pandemic abates, finweek takes a look at the financial performance of some of the largest players.
The effect of Gilbertson's departure
With Ntsimbintle Holdings now the major shareholder of Jupiter Mines, it could change SA’s manganese industry.
Making money from music
Why investors are increasingly drawn to the music industry.
Conviction is key
Sandy Rheeder plays a critical role in Mukuru’s mission to open up financial services to the emerging consumer market in Africa through tailor-made technology solutions and platforms.
The post-pandemic toolkit
How CFOs can use technology to support growth.
Big city living exodus
Mini cities like Waterfall City and Steyn City are redefining city-style apartment living.
Big compact, big value
Handsome, with a hefty level of standard specification, the roomy Haval Jolion compact crossover is a great value proposition.
On barriers to entry
There are various ways in which a company or sector can achieve competitive dominance. They usually make for good investments.
Fear and greed in one index
To buck the trend, when markets are hot or cold, is a tough thing to do. However, it can deliver solid returns.
Africa's largest data centre facility coming soon
Vantage Data Centers plans to invest over R15bn for its first African data centre facility in Attacq’s Waterfall City.