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Chasing Performance

Many investors select asset classes, strategies, managers and funds based on recent strong performance. The feeling that "I'm missing out on great returns" has probably led to more bad investment decisions than any other single factor. If a particular asset class, strategy or fund has done extremely well for three or four years, we know one thing with certainty: we should have invested three or four years ago. Now, however, the particular cycle that led to this great performance may be nearing its end. The smart money is moving out and the dumb money is pouring in. Solution? Don't be dumb. Stick with your investment plan and rebalance, which is the polar opposite of chasing performance.