Just as fund companies tend to overstate the expertise level of their youthful, call-center "investment advisers", management also tends to attribute what the evidence shows to be more-or-less luck to extraordinary investment acumen. As I've said before, the exorbitant fees charged for active management would be well worth it, if superior returns were consistently delivered. But, the returns are not being delivered, and the fees are mostly not worth it (especially the overpriced, advisor-pushed funds). What's worse, while I concede that in any given year, two thirds of fund managers will beat the market, that percentage decreases dramatically as the time horizon lengthens.

In fact, using a manager's good track record has been shown to be one of the worst things you can do when picking a fund. The maxim of past performance as no guarantee of future results is right. For that matter, superior past performance is almost a guarantee of sub-par results in the future.

If you read the advertisements for mutual funds in the business pages, they are likely accompanied by smiling, happy, healthy people and in big numbers, the 1, 5, and 10 year returns on the fund. If they are really gutsy, and have happened to beat the S&P 500, they'll compare those numbers with the index as well. However, this only tells part of the story. First, every well managed fund that delivers consistently faces a huge upsurge in dollars to invest, making it harder to deliver those outperforming returns. Do they make this clear in the advertisement that the superior returns delivered many years ago are harder to come by now that they have 10x or more to manage? No.

Second, one of the true benefits of operating a huge fund complex with dozens or hundreds of funds means that, at any given time, one of them will be outperforming. This means that the funds are touting what is hot at the moment, keeping silent about their underperformers, and exacerbating the first problem. I am reminded of the book maker who makes ten picks a week, so that he can be sure to have some correct calls to tout the next week. The