The Problem with Fund Selection

Mutual fund selection is very problematic since you are making investment decision based on history.
Moneywatch.com sports a very interesting article about the return investors made in the famous and very succesfull Fidelity Fund Magellan. The now famous fund manager Peter Lynch run the fund from 1977 to 1990. The funds average annual return for that period was 26% and the benchmark S&P500 returned 13%.
Investors picking that fund must have been very smart with their fund selection. Unfortunately, the average investor of the Magellan fund under performed the market. How is that possible?

From 1963 until 1981 the fund was closed. Before the opening the fund was very small and only run to build a successful track record. After the opening the Peter Lynch achieved an annual performance of 13% and the benchmark a performance of 16%. 1990 Peter Lynch retired with 46! From 1990 to mid-2010 the fund returned 7% annually trailing the benchmark.

Most inflow came when Mr. Lynch was already a retiree!

I once read that selecting a fund based on past performance is like driving a car by looking into the rear mirror.