CXO Advisory has a great post today dealing with how retail mutual fund investors generally do themselves more harm than good by "continually reallocating resources across different mutual funds." They reference work done by Andrea Frazzini and Owen Lamont who found among other things, the following to be true:

• "High individual investor sentiment, as measured indirectly via mutual fund flows, predicts low long-term future returns for underlying stocks. Stocks owned by funds with large inflows tend to be overpriced."
• "In the long run, retail investors reduce their wealth by continually reallocating resources across different mutual funds. By chasing high mutual fund returns, they tend to direct their money to funds which invest in stocks with low long-term future returns."

Please please please try your best not to chase after performance in mutual funds. It is short-sighted at best and at worst it could cause ruin to your financial future. Make sure to check out this previous post of mine on mutual funds as well.

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