First principles of investing
Introduction|
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Q&As |
Recommended reading|
Quiz |
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6. Is past performance a guide to the future?
Performance statistics may hide more information than they reveal. However, they may be a useful aid provided you bear in mind the following important caveats:
- They must be coupled with a clear understanding of how past performance was achieved;
- They must be combined with an assessment of the current investment style of the management team;
- The individuals responsible for past performance must still be in place; and
- The risks taken to achieve these returns must be acceptable.
It may be wise to be wary of very small funds (insufficient scope for diversification) and high charges (undermine your return) and do check for flexible, penalty-free exit terms.
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