The Lesson That Investors Haven't Learned Yet

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We all know that investors tend to have an itchy trigger finger. It takes a strong-minded individual to ignore the day-to-day happenings in the market and hold on to good investments through thick and thin. But although a buy-and-hold strategy may sound good, most investors have trouble putting that theory into practice.

Making investments that stick
A recent study by financial research firm Dalbar offers more proof that mutual fund investors attempt to time purchases and sales based on current market conditions, rather than hold for the long run. According to the study:

• An investor's return is far more likely to be driven by his or her individual behavior, rather than fund performance.
• Fund investors who hold their investments throughout good and bad environments fare better than folks who try to time the market.
• But most investors don't heed this advice and instead end up holding funds for a less than optimal amount of time.

This study is just one more nail in the coffin of market timing. Everyone's first instinct is to sell when the market heads down, but the truth is that investors just can't call the tops and bottoms of the market with any degree of accuracy. They end up doing more damage by getting in and out of the market at the wrong times.

It's hard to stay put while everyone else is selling. Just ask investors in Yahoo! (Nasdaq: YHOO), who saw their shares plummet after Microsoft (Nasdaq: MSFT) called off its bid for the company. Yet if you believe that Yahoo! was a strong company worth owning before Microsoft made its initial bid, nothing has really changed -- and perhaps the long-term gains you'll earn will dwarf the quick profit you would've made from a takeover.

The same is true for a host of other fallen angels. Ugly earnings guidance from WellPoint (NYSE: WLP) brought down stocks across the industry, including Humana (NYSE: HUM) and UnitedHealth Group (NYSE: UNH). Big pharmaceuticals like Merck (NYSE: MRK) and Pfizer (NYSE: PFE) have seen their stocks locked in slumps. Although these companies could be facing permanent changes in their businesses that would justify selling, it's clear that many investors are just following the herd.

So learn from the mistakes of your fellow investors -- find some good investments, whether that be mutual funds, stocks, or a combination of both, and stick with them. You'll do better in the long run, and you'll sleep better at night, if you focus on the long-term picture and tune out the daily noise.

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The smart thing to do is to invest for the long run -- but how do you know which funds to hold during that time? Fortunately, the Fool's Champion Funds newsletter service does the dirty work for you, by scoping out all the best mutual funds this side of the planet. Check us out with your free 30-day trial today.

Amanda Kish heads up the Champion Funds newsletter service and does not own shares of any of the companies or funds mentioned herein. Microsoft, Pfizer, and UnitedHealth Group are Inside Value recommendations. Pfizer is also an Income Investor pick, and UnitedHealth Group is also a Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy.