Mutual Funds – Behavior Gap

History shows that mutual fund investors generally increase inflows after observing periods of strong performance. They buy at high imagesprices when future expected returns are lower, and they sell after observing periods of poor performance when future expected returns are now higher.

This results in what author Carl Richards called the “behavior gap,” in which investor returns are well below the returns of the funds in which they invest. Perhaps with this observation in mind, Warren Buffett once said, “The most important quality for an investor is temperament, not intellect.”  Continue reading “Mutual Funds – Behavior Gap”