We’ve all seen the data that dollar weighted returns are far below fund weighted returns. That’s because, as behavioral finance has consistently shown, investors have a tendency to act predictably irrationally.

In looking at stocks, since the beginning of 2000, we’ve had two stock plunges of about 50%. In each of these, money flowed out of stock funds at the market lows and funds flowed into stock funds at the highs. In fact, since the last plunge, funds didn’t start returning to stocks until January of this year.

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