Final answer:
Historical results can be a poor estimate of future returns due to potential fundamental changes in a company or industry, shifting market expectations, and the unpredictable nature of risk and return in the stock market.
Step-by-step explanation:
Historical results may prove to be a poor estimate of future returns for a variety of reasons. One key reason is the existence of fundamental changes that can drastically affect an investment's future performance. For instance, a company that has historically performed well may face new challenges or changes in its industry that reduce its future growth prospects. Additionally, the nature of the stock market is influenced by expectations about the future, which means that current stock prices reflect what investors believe a company will achieve going forward. A company that is undervalued due to poor expectations, but then exceeds those expectations, can offer significant returns. Finally, it's crucial to understand that high risk can lead to high returns, but it can also lead to substantial losses, reflecting the inherent uncertainty in predicting stock market performance.
In summary, historical performance is not a reliable indicator of future success due to potential fundamental changes, shifting expectations, and the unpredictability linked to risk and return dynamics.