Disclaimer: Past performance of the Sponsor/ Mutual Fund/ Investment Manager are not indicative of the future performance of the Scheme(s)

This is a statement that delinks the performance of a mutual fund from its past achievements. But is it applicable only to the mutual funds? Or it is meant only to provide an escape route to the fund managers in case of underperformance? In reality many people base their decision on the past track record of the fund. Past track record, despite the disclaimer, is something that is considered by all of us while taking decisions, whether they are small or big. And often, decisions taken on past track record alone go wrong.

A new movie of Shahrukh Khan was released few days back – Dilwale. Not only are the box office collections not as good as expected, the reviews are worse. People who spent their time and money to watch this movie are unhappy. Considering the credibility of the star cast, despite little bit of politics, this flop show debunks the theory of ‘track record’. In fact it is the track record phenomenon that would have increased box office collections significantly. After all many fans of Shahrukh would watch the movie only because of his track record, and regret later. While this may be true for this movie and Shahrukh Khan, by no means it is the only one. Almost every successful star would have same numbers or more flops as compared to hits.   Not only that, we have many actors who had a very successful debut, but could never replicate that success ever again. Do we remember names like Mandakini of ‘Ram teri Ganga mailee’ fame? Kumar Gaurav of ‘Love Story’? Vijay Arora of ‘Yadon ki Baraat’? They had their day under the sun, but could not repeat the success ever again. So the MF disclaimer is not necessarily valid for that sector only.

Now let us try to check some other sectors. I’m sure everyone would know Hotmail. I also feel people would know legendary Sabeer Bhatia who invented not only Hotmail but a concept of getting mails on internet. Where’s he now? Any more concept launch? Any more success? I don’t think there’s any. We can’t doubt that he was brilliant. We also want to hope and believe that such brilliant people should continue with their innovations. But this hasn’t happened. I’m sure this is not for the want of trying. And he is not alone.

Salman Rushdie. Very well-known author.  I just checked on google about the books he has written. There are so many that I couldn’t count. Which is the book that became very successful?  Satanic Verses. Does anyone remember any other successful work? If I prompt maybe we can think of ‘The Moor’s last sigh’, or ‘Haroun and the Sea of Stories’. But if the past track was so important all his works after 1988, when the Satanic Verses became a hit, should have followed the same trajectory. But no, it seems that the disclaimer applies here too.

We’ve had legendary sports people. Gavaskar, Tendulkar, Kapil Dev, Dhoni etc. Despite their unmatched competence and talent were they successful individually in every game? Did they get their teams win every time? Wasn’t their own and their team’s performance depended on many other factors also? Doesn’t the disclaimer work here too?

We have seen Dr. Manmohan Singh in many roles. Most famous of these roles could be his being the Union Finance Minister and the Prime Minister of our country.   Everybody who is connected with the current affairs would agree that he was immensely successful as the Union Finance Minister in early 1990’s. But was he equally successful as the PM? Politics and loyalties apart, even his strongest supporters will agree that there’s no comparison at all. His performance as a PM, a far more powerful position, was no match to his performance as the Finance Minister. Which again means disclaimer is applicable here too and track record does not necessarily defines a person’s success or failure. There are other factors also involved.

Let’s focus for a while on the business and corporate world. Some of the largest and best corporations in the world, having successful run for many years and many countries could not make a mark in India. General Motors when entered India was still the Fortune one company and the largest auto maker. They are still nowhere to be seen here. It is equally applicable to many others like Ford Motor company, Volkswagen, Fiat etc. Their past track just didn’t work here. General Electric, another very successful corporation, could not make its presence felt here in any field, except the BPO business, which was a sort of new business that didn’t have a track record. Air Asia, Singapore Airlines and many more would confirm that it is tough to transplant the success at one place and in a particular set of circumstances to a different product, geography and situation. The disclaimer doesn’t seem to leave us here too. Is it only applicable to MNCs? Remember Karsanbhai Patel? Nirma fame? Where’s he now? Where’s the company? He was a legend who taught many marketing lessons to marketing king Unilever. Could he sustain? Could he start any other Nirma? Oh no, disclaimer doesn’t seem to leave us in any field.

I know of many executives in the corporate world who were immensely successful in their roles, but when transplanted in a different company, even if it was in the same industry, they failed miserably. They could not replicate that success in the new situation. Probably their previous success was on account of many other factors also like the timing, colleagues and team, social environment, general state of the economy, competition, support from the stake holders etc.

But should we look at it from the perspective of success to failure only or it works in the reverse direction also? Anybody who’s connected with the corporate world would know that before taking over as the Chairman of Tatas, Mr. Ratan Tata had been an utter failure in all his assignments. That also when he was past 50 years of age.  But then, he became one of the most successful Chairman of Tata Sons. The disclaimer appears to work in reverse also – past failures don’t guarantee failure in future also. Legendary Amitabh Bachchan had his first hit film in Zanjeer, after acting in many films previously. He carried this film on his shoulders despite much better known actors like Pran & his own wife Jaya Bhaduri acting in it. There was no looking back for him for more than a decade till he started fading as a hero in late eighties. Failure, success, failure. He again reinvented himself in ‘Kaun Banega Crorepati’, refreshed and again there’s no looking back. Whole lot of actors like Mandakini, Kumar Gaurav and Vijay Arora etc. were successful once without having any previous track record. People like Mr. Arvind Kejriwal, current Chief Minister of Delhi, had no previous track record of either success or failure when it came to governance. But he was elected by the people of Delhi with a massive majority.

I can go on and on when it comes to giving examples from real life, on both situations, successful to failures and failed to successful. Limited point that I’m making is that the disclaimer with which we started our discussion is not applicable to mutual funds alone. It is applicable to almost everything in our lives – past performance is not indicative of future performance.

If not the past performance then what should also be considered while taking important decisions in life? My view is that the performance of a person, brand or a company, good or bad, has a lot to do with the other situational factors. This may have any number of combinations related to people, their likes and dislikes, culture, ethos, team, support systems, competition etc. No wonder, defence forces have a special description for a leader during wars – ‘War time General’. War time Generals are different with special skills, leadership, thinking and strategic planning ability. These Generals may or may not be successful during peace times. While there are many examples to substantiate this, closest is Lt. Gen. Harbaksh Singh, who as GOC-in-C of the then Western Command ensured that India had an upper hand in 1965 war. He virtually snatched victory from the jaws of defeat. So a belief that success can be transplanted elsewhere easily is fraught with danger. Also, it may not be appropriate to give the credit of success or failure on the individual alone.

My Little Thought Of Life in this context is that the disclaimer – past performance is not indicative of future performance – is applicable to many situations in life, not necessarily the mutual funds. Which means, whenever we take any decision, while we may consider the past performance we must know that this is not adequate. We will have two scenarios. One, where we have to take a decision and two, where someone else has to take a decision about us. When we take a decision we must not only consider the success or failure but look into the factors that resulted in that. A man could be a duffer, but otherwise successful during a period because of favourable circumstances. This man may fail miserably in adverse circumstances. Similarly, a man could have failed but the factors for his failure may lie with someone else. The same man, given little bit of support and right environment may become one of the most successful person we have seen. It is not the past alone that determines the future but significantly the details behind the curtain regarding the factors responsible for that track record. In a scenario where someone else has to take a decision about us we must be very clear in mind what we do now will be done on a clean slate, with an outcome that has no bearing on the past performance. If we have failed multiple times in the past that doesn’t mean we will fail again and we have been successful in the past, that doesn’t mean we can’t fail in future. Every situation is different, every time is different and every task requires sincere planning, execution, hard work and a belief that past doesn’t dictate our future.

To my friends and readers I wish they remember the disclaimer – past performance is not indicative of future performance – and take confident decisions in life that are based on the situation  and existing factors rather than something that happened in the past. Past failures should not make us despondent and past successes shouldn’t make us arrogant. For both outcomes we alone were not responsible – there were many other factors that assisted us in reaching a particular outcome.