Forced Short-Term Focus: Many investors judge the performance of their funds over short periods of time (a year or less). If the mutual fund performs poorly during that time, then some investors will withdraw their money. When that happens, the mutual fund manager is forced to sell stocks at low prices, even if they don’t want to. The exact opposite occurs when a fund does well. Investors add money to the fund, which forces the manager to buy stocks at higher prices, even if they don’t want to. These actions force fund managers to invest for the short-term even if they want to invest for the
...more
