The following has been my investment strategy.
For the past 11 years, I've had 10,000 fund managers flip a coin once a year (10,000 is the approximate number of mutual funds in the United States). The objective has been to flip heads. Heads means you beat the market and tails means you miss the market for a given year. This doesn't include fees and taxes, but everyone knows that fees and taxes aren't important.
After 10 years, 10 of the 10,000 fund managers had flipped heads every single year. Incredible. These 10 guys had to be the most proficient coin flippers in the entire world. True experts. They were guests on dozens of business talk shows, interviewed in countless magazines, and discussed at length on the internet. "How do you do it, Joe? How do you get it right each and every year? Well, Neil, it's all in the wrist. You have to flick the wrist just right. What about you, Bob? What's your strategy for success? You know, a lot of people ask me that. I seek out the fundamentals of coin flipping by analyzing the metal content in each coin I flip. That's they key."
So, after reading about these guys in all those magazines at the supermaket with "10 Hottest Funds" on the cover, I shrewdly invested my money with them. They obviously knew how to flip coins better than any of the other fund managers. I ignored their loads, investment fees, and turnover rates. None of that mattered because they had proven track records of success. Why wouldn't they be equally successful in the future? I wasn't about to support any of the 10 "losers" who flipped tails each year (known as dogs of the coin flippers), nor was I too keen on any of the mediocre coin flippers who were 5-5.
So what happened in year 11? Well, 5 of my 10 expert fund managers got it right once again by flipping another heads. Unbelievable. They've beaten the market 11 out of 11 years. Man, they're good. I'm good. Do I know how to pick funds or what. I've got me some hot funds. I'd be a fool not to keep my money with these guys. Sure, the other 5 experts faltered a bit this year by flipping tails. But that's not so bad. Their 10 year average is still 9 heads and 1 tails, an impressive record. One bad year. So what? As a smart investor, I'm keeping my money with these guys too.
Now, I have a friend who invests almost exclusively in index funds. Sure. They're less expensive than my funds and they have tax advantages because of lower turnover rates. But his guys are coin flipping at only 50% or so. I'm the one with the hot funds. I'm willing to pay the extra 2-3% a year in fees. Big deal. A few percent doesn't matter when you have guaranteed winners like I do in a portfolio. Just look at the records of these guys. All the media pundits are talking about them too. Proof positive. How could I go wrong?
(By the way, if you don't know what sarcasm means, look it up in the dictionary. Also, if you don't know probability, if 10,000 people each flip a coin 10 times, on average, about 10 will flip a heads each time).