It is completely useless to verify that someone's investment choices were successful in the past without knowing why. For example, there are enough hedge funds out there that there will always be a few that outperform the market just through sheer luck, and there's no way tell the difference between a fund which has succeeded in the past through sheer luck and one that's actually well-managed. In fact, I seem to recall there's decent statistical evidence that nearly all managed investment funds with a track record of success were successful in the past solely through chance.
Edited: In fact, Warren Buffett has an interesting bet outstanding related to this, see http://longbets.org/362/
It's not completely useful, nor is it completely useless. As long as it is possible to be a "good" investor, in the sense of making lots of money, it can still be somewhat useful. If you continue to bet on people who made successful investments in the past, you might get burned by the people who merely got lucky, and you will make money when the person really was a smart investor. Past performance thing is not a convincing argument against this. A valid argument would be that the ratio of those groups is not favorable enough to overcome the management fee. I'd be interested to see if the Buffet bet you mention is related to this, but my work filter blocks that site.
The only thing you can measure is past performance. In investing, past success is not a guarantee of future long term success. Long Term Capital Management had two Nobel laureates among its partners. The fund was extremely successful in its first few years (~40% yearly return with little volatility), but then lost over four billion in just a few months, and eventually closed.
Of course you don't get a guarantee. People who are looking for one are stupid. You get a betting advantage - as long as you accept that it is possible to be a "good" investor, in the sense of making lots of money. If you continue to bet on people who made successful investments in the past, you might get burned by the people who merely got lucky, and you will make money when the person really was a smart investor. Past performance thing is not a convincing argument against this. A valid argument would be that the ratio of those groups is not favorable enough to overcome the management fee.
Actually you don't. The investment industry understands very well that people will naively invest based on superior historical performance, so they use that history to sell investment products. One example of a popular rating system is the Morningstar Rating which rates a fund, stock, or manager based on performance over e.g. 3, 5, 10 years. But that history is public information that most investors use already, so it cannot convey a betting advantage.
"you will make money when the person really was a smart investor"
Statistically speaking, you will run out of money long before you find this hypothetical smart investor. Also, note that the smart investor has not necessarily been "successful" in the past. He could very well have been accumulating shares or fund units while prices were falling, anticipating that they will rise in the future.
Point is, unless you know why that investor is smart, you are essentially leaving it all to chance.
