I first wrote of this phenomenon last September in a post titled “Disappointing Returns“. In that post I cited data that reported that for the 20 years ended Dec. 31, 2006, the average stock fund investor earned a paltry 4.3 average annual compounded return compared to 11.8 percent for the Standard & Poor’s 500 index. Wow, that’s abysmal. These investors would have fared better by staying in CDs during that time. Last month (the June issue) in Smart Money magazine, I found this telling graph;
What we find is that investors don’t buy and hold. Not by a long shot. They pour money in just at the market is reaching a top, and then, just as the market reaches a short term low, they panic, and sell their funds. Thus the title of my post today.