Perspective on Performance
Via Condor Options:
Investors are notorious for chasing performance. If a mutual fund or advisor or trading strategy has done well recently, chances are much greater that traders will commit money to that strategy or product, often independently of the long term performance, general suitability, or distinguishing features of the strategy or product. I’ve seen the same behavior among the audience for our paid newsletters: after a winning month, new subscribers are more likely to rush in, and if we have a flat or down month, interest from new readers drops. This is exactly the kind of backwards thinking that dooms most investors to underperform even basic market benchmarks: most investors would literally be better off allocating every cent to a plain vanilla index fund, rather than jumping around from one strategy to the next like insects in the lighting section of a hardware store. I get frustrated on behalf of smaller and newer traders in particular, because while they tend to have low risk tolerance and tend to face higher transaction costs – i.e., they’re the group who can least afford to chase performance – they’re also the most likely to do exactly that. You don’t see smart, profitable institutions switching from following commodity trends to selling volatility to trading fixed income every time one of those asset classes has a nice run.
Read the full post here
Subscribe