Why Do We Fall Into Buying High and Selling Low?

If your interested in personal finance, read this article.

(H/T To Finance Professor For Posting This)

Click Here To Understand What Happens When We Buy High & Sell Low

Introduction (Via NYT)

Last year, investors made a bad situation worse in the bear market by trying to time when to get into and out of stock mutual funds. As a group, they would have lost much less money had they simply held onto whatever funds they owned when the bear market began.

Consider the domestic equity fund that, as of mid-2008, had the most assets under management, according to Morningstar: the Growth Fund of America, from the American Funds family. An investor who simply held the fund over the 12 months through May would have lost 31.4 percent, Morningstar found. By contrast, it calculates, the actual return for the average investor in the fund was worse: down 32.7 percent. Those are the most recent comparable returns of the Class A shares of the fund.

Additional Excerpts (Via NYT)

Of course, not all fund investors were poor market timers in recent years. But the average investor was, according to Conrad Gann, chief operating officer at TrimTabs Investment Research of Sausalito, Calif.

In other words, Mr. Gann said, the average investor bought high and sold low.

This inability to time the stock market’s short-term swings isn’t limited to mutual fund investors. A recent study found that hedge fund investors, on average, may be even worse market timers.

Click Here To Understand What Happens When We Buy High & Sell Low