In general, most investment vehicles (including mutual fund, private equity fund and hedge funds) around the world tend to underperform even the benchmark indices which possesses questions on active investing as such. Only a minority of investors which ‘owner’s mentality’ are able to beat the benchmark. This is still a known fact – what is probably unintitutive and hence unknown to many is that most investors in the underperforming investment vehicles tend to do even worse than the investment vehicle performance as they enter and exit at the wrong time due to their own problems of greed and fear. Read below quoted paragraph from a book I was reading by an acclaimed investor (quoted verbatim).

“I dismissed an investment in mutual funds quite quickly because I was familiar with findings that the vast majority of mutual funds underperformed the market indices on an after-fee basis. I also became aware of the oft-neglected but crucial fact that investors tended to add capital to funds after a period of good performance and withdraw capital after a period of bad performance. This caused investors ’ actual results to lag signifi cantly behind the funds ’ reported results. Fund prospectuses show time-weighted returns, but investors in those funds reap the typically lower capital-weighted returns. A classic example of this phenomenon is the Munder NetNet Fund, an Internet fund that lost investors billions of dollars from 1997 through 2002. Despite the losses, the fund reported a positive compounded annual return of 2.15 percent for the period. The reason? The fund managed little money when it was doing well in the late 1990s. Then, just as billions in new capital poured in, the fund embarked on a debilitating three-year losing streak.