Chasing Performance Is Only a Problem Without a Plan

Key Insight:

Performance-chasing isn't inherently irrational. It becomes dangerous when done without a system. This myth’s real lesson is that ‘reaction without a rulebook’ is what leads to disaster.

The Psychology

Investors are rewarded early in bull markets, reinforcing behavior that may not be sound. This reinforcement loop creates bubbles—not from data, but from collective conviction.

Evidence

The dot-com boom wasn’t just a tech story. It was the cumulative effect of investors chasing early winners—until there was no one left to buy. One real-world example from the book: a woman who turned $10K into millions, only to lose it all by never exiting.

The Trap

Without an exit strategy, you’re just hoping. Most trend participants don’t profit—they create the trend and exit too late.

Actionable Strategy

Be a *follower*, not a *believer*. Trend following—when done systematically—can identify when to enter and exit based on real price behavior, not hope.

Proof Point

S&P’s Diversified Trends Indicator (DTI) is one real-world example. From 1988 to 2010, it had only 42% of the S&P 500’s volatility, and less than one-third of its drawdown—with near-equal returns.

Bottom Line

The problem isn’t chasing performance. It’s doing it without discipline. The right strategy doesn’t fear trends—it thrives in them.