A version of this article was originally published in the January 2018 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor here.
Contrarian thinking doesn't come naturally to most investors. Fund-flow patterns tell us they buy what's done well recently and sell what hasn't. This pattern can become self-reinforcing. Strong flows drive up stock prices, attracting more return-chasing investors and bidding up prices further.
Christopher Davis does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.