Why past winners rarely repeat
Survivorship, reversion to the mean, and star ratings: why picking yesterday's best fund is harder than it looks.
FinanceBogle ch. 8–9About 5 min: 3 reading, 2 practiceUpdated
General education, not financial advice.
- Explain survivorship bias and how it flatters fund records
- Show why a big gain followed by a big loss leaves little behind
- Read persistence data on whether winning funds keep winning
Common-sense investing: the case for index funds: lesson 8 of 13
- Bogle ch. 1
- The Gotrocks family 4 min
- Bogle ch. 2
- Where stock returns come from 5 min
- Bogle ch. 3
- Owning the whole market 4 min
- Bogle ch. 4
- Costs and the market return 3 min
- Bogle ch. 5
- Fund returns versus investor returns 6 min
- Bogle ch. 6
- Taxes are costs too 5 min
- Bogle ch. 7
- When future returns are lower 5 min
- Bogle ch. 8–9
- Why past winners rarely repeat 5 min
- Bogle ch. 10
- Paying for advice 5 min
- Bogle ch. 11–12
- Costs go on forever 5 min
- Bogle ch. 13
- Bonds and money-market funds 4 min
- Bogle ch. 14–15
- New indexes and ETFs 5 min
- Bogle ch. 16–18
- Graham, the arithmetic, and a plan 5 min
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Pairs with Bogle, The Little Book of Common Sense Investing (2007), chapters 8–9, "Selecting Long-Term Winners" and "Yesterday's Winners, Tomorrow's Losers"
What it is
Looking back, it's easy to find funds that beat the market. Bogle's question is whether you could have picked them in advance, and whether they keep winning.
Survivorship bias. Funds that do badly are often closed or merged into other funds, and their records drop out of the statistics. What's left looks better than what investors actually had to choose from.
Bogle's example: of the 355 U.S. stock funds that existed in 1970, by 2005:
Source: Bogle, The Little Book of Common Sense Investing (2007), ch. 8, Exhibit 8.1; comparison with the S&P 500. Points = percentage points of yearly return.
Text description
Bar chart. Closed or merged: 223; Lagged by 1+ point: 60; Within 1 point: 48; Beat by 1–2 points: 15; Beat by 2+ points: 9.
And of those 9, Bogle notes that 6 had done their winning years earlier and lagged after growing large, leaving 3 of 355 with long, sustained success.
Reversion to the mean. Unusually good results tend to be followed by more ordinary ones. Bogle's sharpest example: the top 10 of 851 funds over 1997–1999 averaged gains of 55% a year; over 2000–2002 every one of them ranked 790th or lower out of 851.
Quick check
Tap an answer to check it.
Why do surviving funds' records look better than the funds investors could choose from at the start?
- Survival isn't about fees here
Show answer
The worst performers were closed or merged and dropped out of the data. Survivorship bias removes the losers from the record.
Why it matters
Most fund advertising, rating and choosing is based on past returns. If past winners rarely repeat, a fund's star rating or chart tells you more about the past than the future, as every fund prospectus and advertisement warns: past performance is no guarantee of future results.
Worked example
Big swings are deceptive. A fund gains 55% one year and loses 34% the next:
- 1.55 × 0.66 = 1.023: a total gain of about 2%, not 55 − 34 = 21%.
Losses hurt more than gains of the same size help, because the loss applies to a bigger amount. And investors who bought after the big gains (as many did) caught only the loss: in Bogle's figures, the top 10 funds themselves made 13% cumulatively over the six years, while their investors, who mostly arrived late, lost about 57%.
Common mistake
Choosing a fund because it has the best record of the last few years. Bogle reports that a portfolio switching into Morningstar's 5-star funds earned 6.9% a year over 1994–2004, against 11.0% for the total stock market (a study by Mark Hulbert). Ratings describe what has happened; Bogle reports they were poor predictors over 1994–2004.
Key terms
- survivorship bias
- the distortion when failed funds drop out of the record
- reversion to the mean
- the tendency of unusual results to move back toward the average
- persistence
- whether a fund's good performance continues
- star rating
- a score based on a fund's past risk-adjusted returns
Practise the key terms
Tap a card to turn it over. 4 cards.
| Front | Back |
|---|---|
| survivorship bias | the distortion when failed funds drop out of the record |
| reversion to the mean | the tendency of unusual results to move back toward the average |
| persistence | whether a fund's good performance continues |
| star rating | a score based on a fund's past risk-adjusted returns |
Practice
Quick quiz
Tap an answer to check it.
A fund rises 50% and then falls 50%. Overall it is …
- The fall applies to the bigger amount
- 1.5 × 0.5 = 0.75
Show answer
down 25%. 1.5 × 0.5 = 0.75.
A fund company advertises that "90% of our funds beat the market over 20 years". What should you ask first?
- That doesn't address survivorship
Show answer
How many funds did they have 20 years ago, and how many were closed or merged?. The claim may only count the survivors.
Sort it
Survivorship bias, or reversion to the mean?
A fund family's average return looks high because its worst funds were merged away
The losers left the data.Show answer
Survivorship bias. The losers left the data.
Last decade's top fund is average this decade
Unusual results fade toward average.Show answer
Reversion to the mean. Unusual results fade toward average.
A ranking lists only funds that still exist
Closed funds are missing.Show answer
Survivorship bias. Closed funds are missing.
A hot sector fund cools after a boom
The boom didn't last.Show answer
Reversion to the mean. The boom didn't last.
The other view
Today's figures, from S&P Dow Jones Indices' SPIVA reports, which count closed and merged funds so that survivorship can't flatter the result:
- Over the 20 years to the end of 2025, 92.9% of actively managed U.S. large-cap funds trailed the S&P 500, and only about 35% of the large-cap funds that existed 20 years earlier still existed.
- Persistence is weak but not zero. Of large-cap funds in the top quarter in 2023, 29% stayed in the top quarter in each of the next two years. But in every domestic stock category except small caps, none of the top-quarter funds of 2021 stayed in the top quarter through 2025.
Bogle also notes that Morningstar changed its rating method in 2002, and that its four- and five-star funds have done relatively better since. Some managers do beat the market for long periods. The difficulty Bogle points to is identifying them beforehand, and paying for the search.
Last checked: 27 October 2026.
In short
- Records that leave out closed funds look better than reality (survivorship bias).
- Unusual results tend to fade (reversion to the mean).
- A big gain followed by a big loss can leave almost nothing: 1.55 × 0.66 ≈ 1.02.
- Current SPIVA data: most active funds trail their index over long periods, and top performers rarely stay on top.
Mastery check
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Check yourself
Answer in your head first, then open the answer. Nothing is saved.
Of Bogle's 355 funds of 1970, how many had closed or merged by 2005?
Show answer
223, almost two-thirds.
Why does +55% then −34% not give +21%?
Show answer
Returns multiply: 1.55 × 0.66 ≈ 1.02, about +2%.
What does "past performance is no guarantee of future results" warn against?
Show answer
Assuming a fund's past winners will keep winning.
Further reading
- John C. Bogle, The Little Book of Common Sense Investing (John Wiley & Sons, 2007), chapters 8–9.
- S&P Dow Jones Indices, SPIVA U.S. Scorecard, Year-End 2025 and U.S. Persistence Scorecard, Year-End 2025, free.
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