Why chasing recent market winners can hurt long term wealth creation

Retail investors who chase top-performing sectors, funds or market themes often end up hurting their long-term wealth creation, according to mutual fund industry veterans Nilesh Shah, Navneet Munot and Kalpen Parekh.

Speaking during a panel discussion titled “What Your Fund Managers Wish You Knew” at Groww’s India Investor Festival, the three market veterans warned that behavioural mistakes such as recency bias, emotional investing and unrealistic return expectations can significantly damage long-term portfolio returns.

Recency bias

Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company, said investors frequently become attracted to investments only after prices have already risen sharply. “One of the biggest mistakes investors make is recency bias,” Shah said.

He explained that investors tend to assume recent high returns will continue indefinitely, often leading them to buy near market peaks. Using the example of silver prices, Shah highlighted how investor interest rises dramatically after large rallies.

“When silver was at 18 dollars a troy ounce, we got ₹20 crore into an NFO. When silver was at 120 dollars, we would have gotten ₹400–500 crore,” he said.

“At lower prices nobody listened. At higher prices everyone wanted to buy.”

Shah said similar behaviour is visible across thematic and sectoral investing trends.

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Referring to Kotak’s defence fund, he noted that many investors entered after seeing strong past performance without understanding the long-term structural thesis.

“The fund has given 60%, and people think even 20–30% annual returns should continue. That expectation itself is wrong,” he said.

According to Shah, disciplined investing during periods of uncertainty often creates better long-term opportunities. “Good news and good prices don’t come together,” he said. “When there is bad news, it is generally a good time to buy.”

Invested patiently

Navneet Munot, Managing Director and CEO of HDFC Asset Management Company, said emotional reactions to market volatility often reduce investor returns. “I always say the real meaning of SIP is ‘Stay Invested Patiently,’” Munot said.

He warned that many investors pause SIPs during corrections and restart after recoveries, missing out on lower valuations and long-term compounding. “Those who paused SIPs during Covid missed buying units at lower NAVs. Those missed units represent your missing alpha,” he said.

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Munot also cautioned investors against reacting to social media noise, geopolitical headlines and short-term market events. “Something happens in the US and you close your SIP. Something happens in Iran and you restart with new money. That should not happen,” he said.

At the same time, he remained optimistic on India’s long-term growth story. “We are 1.4 billion people — a democracy, with demographics, demand, digitalisation and determination,” Munot said. “The pessimist sounds very interesting. But the optimist makes money.”

Realistic expectations

Kalpen Parekh, Managing Director and CEO of DSP Mutual Fund, said unrealistic return expectations are another major problem among retail investors. “Please have realistic expectations,” Parekh said.

“If you expect 30% compounded returns for the next 25 years, that is unlikely to happen.”

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According to Parekh, investors often focus only on short-term bull market returns while ignoring long-term historical averages. “Over very long periods, average real returns above inflation are between 0% and 6%,” he said.

He also stressed the importance of maintaining discipline throughout market cycles. “When people say ‘buy when there is blood on the street,’ they forget that discipline is required even during periods of market euphoria,” Parekh said.

The panel collectively advised investors to focus on patience, asset allocation and disciplined investing rather than chasing recent winners or reacting emotionally to short-term market movements.