Comments on: RRSP Tip # 4: Do Not Chase Performance

By: Mike

Mike — Fri, 23 Feb 2007 01:58:14 +0000

Securities that get “chased” tend to be high risk as well which helps explain the disappointment if it tanks later on.
If investors could get excited about a short-term bond fund that smoked the index by .5% last year then they wouldn’t lose much even if they chased that fund.

By: Dave

Dave — Thu, 22 Feb 2007 23:11:07 +0000

If people didn’t EVER sell their investments, then chasing performance probably wouldn’t do much harm. I think the harm comes from:

1) selling something that you think is doing badly to go chase something else
2) chase something that did well last year, only to sell it after it does poorly the next year (after you bought it)
3) buying some thing that did well (and maybe selling something else) in the previous year while not considering the risk and diversification of your portfolio.

If people just NEVER sold anything and ensured that they was diversified and their risk is where it should be, then they could chase after performance without too much harm. Of course on the other hand, buying something on the upside is pretty stupid so better to buy the things that did poorly in the last year if anything.

Chasing after performance is definitely a major cause of poor performance in a portfolio and ruin, as you say.

By: Sol Veritas

Sol Veritas — Thu, 22 Feb 2007 06:16:10 +0000

In John Mauldin’s book, Just One Thing, the advice is to get into hot things and get out of ‘not’ things – maybe you’re chasing money for a bit, but if you’re with the trend for awhile, that will make up for losses from the peaks.

Or maybe I just interpreted it poorly…

By: Mike

Mike — Thu, 22 Feb 2007 04:38:27 +0000

Great advice. I guess the other side of that issue is don’t run away from market declines. Once the market drops you’ve already lost the $$ – switching into money market usually means you end up losing on the upside.