Excerpted from Bogle on Mutual Funds by John C. Bogle, pages 159-162

Magazines and newspapers provide an abundance of timely and helpful statistical information. The end of the year brings extensive tables of bond and stock fund performance from Money, Financial World, Business Week, U.S. News and World Report, Barron's, and others. Forbes also publishes its excellent mutual funds issue, usually in September. Any one or two (but not all) are worth the investor's review, simply to keep up with industry trends.

One of the problems with all of this information is that the publishers, in this age when only simple answers are allowed even to complex questions, feel required to publish a single rating purporting to evaluate a fund's performance. Usually, grades of A through E are selected to identify the best and worst funds.

It would be a happy event if the complex world of investing permitted these simple gradations. But the fact is, to fairly evaluate a fund's past performance, you must compare it to funds with similar investment characteristics. Too often, however, different types of stock funds are compared either with an average of all stock funds or with the S&P 500 Index. In this kind of comparison, any small company fund would likely be given the dreaded and undeserved E if the evaluation period favored large blue-chip stocks, but the gratifying and equally undeserved A if the period favored the smaller company stocks.

The problem is worse in the bond fund group since each fund is compared to an average of all bond funds, irrespective of credit quality or length of maturity. It follows as night follows day that a short-term bond fund will garner an A in an environment in which interest rates rise and bond prices decline, while long-term bond funds will garner an E. When rates decline, the grades will be exchanged. What these ratings have to do with the competence of a bond fund's management is not clear.

These performance evaluations are (for the worse, I think) presented daily in The Wall Street Journal. On Tuesday, each fund's grade for the past year is published; on Wednesday, the grade for the past three years; on Thursday, for the past four years; and finally, on Friday, for the past five years. It is possible for a fund to receive an A on Tuesday, a B on Wednesday, a D on Thursday, and an E on Friday. Even when the case is not this extreme, it is not clear what action an investor who respects the system should take. Should a fund that slides from B to E be liquidated? Incidentally, each Monday, the Journal publishes valuable information on expense ratios and sales charges instead of cumulative returns. Perversely, these costs, which are persistent and stable compared with performance returns, are not graded and the rating column lies blank.

Moving beyond the abundant statistics provided, I would give much of the press failing grades on its breathless quarter-by-quarter designations of the best portfolio managers. (And by ignoring the worst managers is not some sort of discrimination being practiced?) Each top manager is lionized with a photo or drawing and a paragraph or so discussing the reasons for his or her success - usually measured over the past quarter, year, or five years. No one is made of luck, nor of earlier failure, nor of the contribution of the fund's objective to its performance superiority. When biotechnology stocks boom, even an incompetent manager of a biotech fund should be among the top performers when compared with managers of common stock funds of all types.