From Seth Klarman:
Fear of missing out, of course, is not fear at all but unbridled greed. The key is to hold your emotions in check with reason, something few are able to do. The markets are often a tease, falsely reinforcing one’s confidence as prices rise, and undermining it as they fall. Pundits often speak of the psychology of markets, but in investing it is one’s own psychology that can be most dangerous and tenuous.
If investors could know only one thing about greed and fear, they should know this: Over the 30-year period from 1984 to 2013, the Standard & Poor’s 500 Index returned an annualized 11.1%. Yet according to Ashvin Chhabra, head of Euclidean Capital and author of “The Aspirational Investor,” the average returns earned by investors in equity mutual funds over the same period was “a paltry 3.7% per year, about one-third of the index return.” Bond fund investors fared even worse: while the Barclays Aggregate Bond Index returned an annualized 7.7%, investors in these funds “captured just 0.7% (not a misprint!) in annualized returns… That staggering underperformance is the cost that individual investors paid for following their instincts” by adding to and pulling money out of their funds at precisely the wrong times. In short, retail investors, in aggregate, substantially underperformed both the markets and the very funds in which they were invested.
