I talked about how the performance of "winning" funds was often sub-par even after
they have achieved high performance rankings relative to other funds.

For more fun, I decided to look at how well a portfolio built out of the worst performing
funds would have done! Again, I went to Barron's magazine. As one may expect, funds
with poor track records often go away. Some go out of business, others are folded into
other funds. However, of the 20 worst performers for the previous 10 years ending in
December, 1999, I could find 6 that are still "alive". I assume, perhaps incorrectly, that
most of the other funds were absorbed into funds with better long term track records.

5 year average                                                                                                           
annual performance
ending 12/31/'04
(Including commissions)

Comstock Capital Value A                                   0.69%
American Heritage                                            -14.33%
Van Eck International Inv. Gold                          17.61%
American Century Global Gold                           18.90%
Midas Fund                                                          9.49%

Average annual return                                         9.26%

Vanguard S&P 500 Index Fund                          -2.38%

If you had bought these "worst performing" funds, you would have averaged
over 9% on your money, versus a loss in the S&P 500 Index of over 2% per
year! And, as I pointed out in my recent article entitled "So you like funds!!!", a
portfolio built out of the BEST performing funds over the same period would have
LOST over 6% per year! (Please note that I have shown returns here including
commissions! The performance of the "best" funds excluded commissions!)

So, what is an investor in mutual funds to do with this information? Look for the current
list of poor performers and invest in them? Avoid funds on the best performers list?

My answer is to carefully consider a different approach to investing.  My belief is that
mutual funds are over used and badly misunderstood. Funds can dilute the returns of
great stocks with over diversification. One does not need the over diversification of a
mutual fund to control risk. Risk sensitive investing may be achieved through proper
selection of securities, and a carefully thought out, pre-planned exit strategy.
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professional financial  adviser (if not DAS), prior to acting on any of the information stated above.