predicts subsequent-year performance in the 1970s (see Table 4.4, Panel B), the pattern of persistence in performance virtually disappears in the 1980s (Panel C). To summarize, the evidence that performance is consistent from one period to the next is suggestive, but it is inconclusive. In the 1970s, top-half funds in one year were twice as likely in the following year to be in the top half as the bottom half of funds. In the 1980s, the odds that a top-half fund would fall in the top half in the following year were essentially equivalent to those of a coin flip. Other studies suggest that bad performance is more likely to persist than good perfor- mance. This makes some sense: It is easy to identify fund characteristics that will pre- dictably lead to consistently poor investment performance, notably high expense ratios, and high turnover ratios with associated trading costs. It is far harder to identify the secrets of successful stock picking. (If it were easy, we would all be rich!) Thus the consistency we do observe in fund performance may be due in large part to the poor performers. This sug- gests that the real value of past performance data is to avoid truly poor funds, even if iden- tifying the future top performers is still a daunting task.     CONCEPT C H E C K ☞ QUESTION 4 Suppose you observe the investment performance of 200 portfolio managers and rank them by in- vestment returns during the year. Of the managers in the top half of the sample, 40% are truly skilled, but the other 60% fell in the top half purely because of good luck. What fraction of these top-half managers would you expect to be top-half performers next year?       4.8 INFORMATION ON MUTUAL FUNDS   The first place to find information on a mutual fund is in its prospectus. The Securities and Exchange Commission requires that the prospectus describe the funds investment     5 Burton G. Malkiel, "Returns from Investing in Equity Mutual Funds 1971-1991," Journal of Finance 50 (June 1995), pp. 549-72. I. Introduction 4. Mutual Funds and Other Investment Companies The McGraw−Hill Companies, 2001           SHORTER, CLEARER MUTUAL-FUND DISCLOSURE MAY