The ratings agency Standard and Poors has performed a tracking exercise with their Persistence Scorecard. They look at US equity mutual funds which have beaten their peers over five successive 12 month periods and track this elite group over time.
Above is a visual representation of their report, which shows how many of the elite top 25% performing funds remain in the top 25% over successive years. If their outperformance was due to skill, then you would expect the top performers to remain top performing for several years. If their outperformance was due to luck, then you would quickly see performance fall back to the average over time.
The number of persistently outperforming funds falls rapidly to 26% in the first year, 4% in the second, 0.5% in the third and 0.3% after 4 years.
The stock market is the one place you get rewarded for doing nothing. Stop chasing Alpha. Focus on the plan.
THE VALUE OF INVESTMENTS AND THE INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.