Past Winners Rarely Keep Winning Tomorrow

Researchers calling these funds “the dice down the craps table” warned decades ago: short-term winners often become tomorrow’s underperformers. One study looked at the 20 top funds each year from 1982 through 1992, then checked their rank the next year. On average they fell to the 58th percentile—barely above average. Repeat the test from 1995 to 2005, and the top fund of each year plummeted to the 34th percentile the following year.

Picture a high school track star who wins the 100-meter dash, then the next meet struggles off the blocks. These reversions to the mean happen because success draws new capital, turning a nimble fleet-footed portfolio into a lumbering giant. A fund that beat the market with $50 million might struggle when it grows to $5 billion.

Behavioral scientists call this “regression to the mean”—extreme outcomes tend to be followed by more average ones. Fund managers, no matter how talented, eventually face larger portfolios, higher transaction costs, and shifting market conditions.

The antidote is simple: don’t chase last year’s superstars. Instead, build your core with broad index funds that, by design, never leave the track.

Now, imagine you’re scanning your watchlist: you see last year’s 50% gainer, but you also spot it’s sunk 30% this year. You nod, pull out your new contribution slip, and type in your simple index fund ticker. You don’t feel the rush to chase; you feel relief knowing mean reversion won’t shake your plan. Take that step today.