There's a whiff of irrational exuberance in the air -- and it's emanating from the mutual-fund companies.

Remember the heady days of 1999 and early 2000, when fund companies ran breathless advertisements peddling stock-mutual funds with unsustainably high short-term performance?

Today's ads aren't nearly so irresponsible. But make no mistake: Performance advertising is back. That is bad news for gullible investors -- and it could be a bad sign for stocks.

...At the 2000 market peak, fund companies were hyping past performance like crazy, encouraging investors to buy the hottest funds at the worst possible time.

Indeed, the magazine's April 2000 issue included a staggering 20 advertisements touting stock-fund performance. Ten of those ads plugged stock funds with one-year gains of 100% or more.

As I see it, when a fund promotes past performance, there is an implicit suggestion that the results can be sustained. So what is the chance that a 100% gain will get repeated the next year? In April 2000, fund companies were clearly too busy raking in cash from investors to worry about such pesky issues.

...you ought to be cynical about the ads -- because the fund companies involved are clearly utterly cynical about you and your fellow fund investors. Fund companies know that past performance is no guarantee of future results. In fact, if you read the small print in these ads, you usually find words to that effect.

This is more than just legal boilerplate. It is a story told over and over again. Suppose, at year end 1969, that you had ranked diversified U.S. stock funds based on their 10-year performance and then bought the top 25%. Result: Over the next 10 years, you would have lagged behind the S&P 500, according to calculations using Lipper data by the Bogle Financial Markets Research Center in Malvern, Pa.

Similarly, the top performers from the 1970s were stock-market laggards in the 1980s, and the top performers from the 1980s fell behind the S&P 500 in the 1990s. And the current decade isn't looking too good, either. The top 25% of stock funds from the 1990s have fallen 5.2% a year during the past five calendar years, trailing the S&P 500's 2.3% annual loss.

Because past performance is such a rotten guide to the future, you should focus on other factors when picking funds...