Does past performance ever matter?

Paul, thanks for clearing this up. I should have asked this question in one of your work shops.

Hey Paul,
I gave my answer to your question to Evan. I think he was going to pass that on to you. It would actually make a good video topic. I may actually do a separate video soon without the investment provider specifics.

Jim,
Thanks for your question. I was hoping that my point made sense, but maybe it was a bit fuzzy. The point I was trying to make was that we DON'T look at past performance when it comes to a fund manager's ability to outperform the area of the market he/she is investing in. We CAN expect that stocks will probably have profits in the future and that interest will be paid when we lend money. (Yes, it is ridiculously obvious in a way, but bear with me.) We can't be positive about the level of profits that a company will have and, therefore, what our returns will be. That's risk. However, investors do the best they can at making sure the price they pay will allow for returns commensurate with the risks involved. For example, all else being equal, I won't pay as much for a distressed company as I will a strong stable one. By paying less, I am trying to compensate myself for the risk taken. I am simply saying that investors will likely continue to act in the same manner in the future. Their past behavior of paying less for riskier stocks will probably continue and, as a result, the long term EXPECTED (not guaranteed) return of those riskier asset categories should be higher. This is in contrast with the other form of past performance that I preach against. If a fund manager that invests in large international stocks beat the Europe, Australia, Far East index over the past five years, there is no reason to believe that they will do it again over the next five years. There is a very high probability (but no guarantee) that I will receive a return from owning stocks in that area of the market. Why? Because those companies will most likely have profits that I will participate in as an owner. If none of my stocks (in 41 countries all around the world) have profits and that past performance totally ceases, then I’ve got bigger problems. If there are no profits, there are no taxes. If no taxes, there is no government. If we have no government, then our fixed investments are worthless as well. I think the odds of such a scenario are sufficiently remote that I won’t sit around worrying about them. ;-)
Hope that helps.

Here's a question:

Is "Tactical Asset Allocation" prudent investing?

I think I know your answer. The reason I ask is because my deceased grandfather's trust is being managed by CitiTrust and they are using a mix of about 10 Vanguard and iShares ETFs. Apart from a high trustee fee of 1.75%, I am concerned about their active "reallocation" of the assets in the trust. My mother is the income beneficiary and we would like to remove the current trustee. As you know, they must invest the trust "prudently."

In your professional opinion, is CitiTrust fulfilling their fiduciary duty and acting prudently?

Paul, you can't have it both ways when it comes to does past perfromance really matter. You teach that the histroical data shows that the the stock market always go up and is a great investment. Buit if past performance does not matter then the past can not perdict the furture which mean's the stock market may never go up. So why look at the past when it comes to the stock market?