By Rob Isbitts via Iris.xyz
Play this game instead
Recently, I wrote an article in which I presented a “mystery” set of investments and had you choose the one that looked the best to you. I will not give away the punchline, in case you have not yet read it. That piece proved to be popular among Forbes.com readers. So here, I present a different game of sorts. My hope is that by playing this game for the next couple of minutes, you will refrain from a dangerous yet extremely popular game that has regrettably stood the test of time…investing based primarily on past performance.
It doesn’t matter how many people like me write about that subject. Because the truth is, so much of Wall Street is focused on pumping the idea that what you just missed out on is what you should want right now. It is impossible to not get at least a little tempted. Don’t.
That does not mean that an investment that did well in the past will not do well in the future. But it also doesn’t mean that an investment will do well in the future BECAUSE it did well in the past, especially the recent past. Now, on to today’s game…
In each of the next four pictures, you will see the same two indexes compared. One tracks growth stocks, and the other “defensive” stocks. Each is a subset of the Russell 1000 Index, which tracks the 1000 largest U.S. stocks. Simply ask yourself, which one would I buy? If you are like many investors, you will skip all of the boring statistical, cyclical and investment environment factors and focus on one statistic in particular: which one did better recently?
As you can see, Growth stocks roared through the late 1990s. Defensive stocks did well too, but not as well.
Click here to read more on Iris.