Most investors get what they deserve, too… 

In trying to beat the market, they end up underperforming it. 

The reality is that most investors don’t have a clue what they’re doing. They’d be better off putting their money in a low-cost index tracking ETF and going to sleep for 20 years. 

But that’s not the way human nature works. Everyone wants not just what the market gives them (beta), but also some extra helpings of returns (alpha). 

The compulsion to seek alpha, and the below par results this often leads to, is writ large in the chart below from The Vanguard Group. It shows the median performance of stock funds versus their style benchmark over 36 months following a Morningstar rating.

The conclusion is clear: By chasing “hot” funds, investors underperform their benchmarks. A better strategy, based on the data set analyzed above, would be to buy the least popular funds. 

As top fund manager Howard Marks wrote recently in Barron’s, “The road to above average performance runs through unconventional, uncomfortable investing.” 

Our advice: Either take what the market gives you. Or choose the unconventional and uncomfortable path. 

Trying to beat the market by following the crowd is a mug’s game.