Consumer Reports provides a valuable service for those in the market for a new car, television, or vacuum cleaner. Investors, however, have no such reliable publication. As we’ve highlighted before, the financial media’s Where to Invest Now guides simply encourage investors to buy and sell at inopportune times.
It was just one year ago, October of 2011, that stocks posted one of their best monthly gains of the last decade—up 12%. Leading into this historic surge, however, investors had withdrawn $36 billion from U.S. stock mutual funds. Sadly, the exodus has continued: investors have collectively withdrawn close to $60 billion from stock funds in 2012, while the market has climbed 16%.
As the graphic above shows, this undisciplined behavior is nothing new. In the eight months leading up to the tech bubble’s peak in the summer of 2000, investors committed an eye-popping $254 billion to U.S. stock funds. Similarly, in late 2007 fund flows totaled $93 billion, just before the Great Recession hit. Just sixteen months later, with U.S. stocks down a painful 49%, redemptions peaked, hitting a cumulative $197 billion—after the damage was done and just before, of course, stock markets recorded their best monthly gains in 30+ years.
The lesson? Most investors—whether fueled by the media, their own emotions or intuition—doom themselves to failure.
Discipline keeps you from being one of them.