Buy High, Sell Low

An interview with the manager of Davis Venture Fund featured a reference to two interesting studies. Their own study of ten year performance (ending 2009) of large-cap fund managers showed that 96% of the top performers spent one three year period in the bottom half of their category. Also, 47% spent one three year period in the bottom decile of their category. Of course, most sales and marketing literature, including a lot of the fund rating services, trumpets the past twelve months. Actually, when one looks at ten year periods, it's amazing how many fund managers don't add value for their fees.

They also cite a Delbar Quantitative Analysis of Investor Behavior study (1989-2008) that shows the average fund mutual fund returning 8.9% per year over the period, while the average mutual fund investor over the same period gained 1.9%. The reasons were the tendency to buy what just went up over the past year, as well as dumping an investment class as soon as it tanks. Buy high, sell low--even institutions fall prey to this human foible.