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Author: Crazylegs883 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75791  
Subject: Re: Growth Fund beats Index Fund?!?! Date: 11/12/2004 8:10 PM
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Books by John Bogle point out the mechanics of "regression toward the mean". A fund that did very well over a stated period of time is likely to not repeat in the next period of time; next 10 years a different fund is likely to be the most outstanding.

While most of my retirement funds are allocated on a coffehouse portfolio/couch potato blend, this blurb has me thinking: If we take "regression toward the mean" to be the norm, would it not make sense for funds to go up toward the mean as well as down. To wit, during the go-go 90s, growth funds were the rage, outperforming the S&P (and its own historical average) hand over fist. Then, in 2000, came the inevitable R-T-T-M and growth funds underperformed for the past couple years.

Wouldn't this theory hold that growth funds should soon outperform, given their recent beaten down status? Obviously I don't mean this to apply to any one individual stock, but to the group as a whole - say Vanguard's Growth Index (VIGRX). I guess this could be the equivalent of buying on the dips, but if you're in for the long haul, why not?

Mark
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