Buy high, sell low

A contrarian strategy ("the average investor is stupid") would have paid off pretty well over the last decade. Ah, the wisdom of markets :-)

WSJ: [A recent research report] calculates that mutual fund investors [over the last decade] bought into the Standard & Poor's 500-stock index at an average of 1,434. That's close to its record high of 1,565. If investors had invested at random times instead, their average purchase price would have been 1,171. [Note an actual contrarian strategy would have performed better than random buying.]

... Human beings are hard-wired to run with the herd. For millions of years, when the herd stampeded, the smartest move wasn't the hang around and wait to see why. It was to run.

And that's how they act on the stock market as well. But when it comes to investing, it's a bad idea. Your feelings are a bad guide. And there is no safety in numbers.

I am frequently surprised at how many people still give in to their instincts in these matters. During the housing boom, anything I wrote questioning house prices automatically drew scathing reactions. ...