Don’t estimate the Future of a stock based on its Past performances

1. Common psyche of an investor:
When analyzing a company or mutual fund, many investors would do well to heed the same advice. Instead, they suffer from what is known in the business as “performance chasing”. As soon as they see a hot asset class or sector, they pull their money out of their other investments and pour it into the new object of their affection.

2. Best time to invest in a stock is when it has suffered from horrific industry trends:
As the late Benjamin Graham, father of value investing, pointed out to his readers, past performance is useful in calculating the value of a stock, bond, mutual fund, or other asset only so far as it is indicative of what is to come in the future. Often, the very best time to invest in a particular area is when it has suffered from horrific industry trends over the recent past. Take the oil sector, for example. In the late 1990’s, black gold was trading at $10 a barrel and very few analysts saw an end to the energy sector’s woes. Yet, over the past few years, an investor in refiners such as Valero or an integrated giant such as Exxon Mobile have experienced wonderful returns.