Follow the money, not the chart
The return came first. The crowd came second. The reversion came for the crowd.
Illustrative momentum strategy. Watch the assets column. The money does not arrive when the return is being made. It arrives after, recruited by the screenshot of the return that already happened.
Quiet. Almost nobody owns it yet.
The headline year. The screenshots start circulating.
The crowd arrives. 13x fresh money chasing last year's chart.
Crowding unwinds. The latecomers hold the reversion.
What the factsheet prints vs what the average rupee earned . same four years
Reported . time weighted
16.7pct
Earned . money weighted
3.0pct
The herd tax . the gap
13.7pp
Why the money is always late
Money chases winners roughly 5x harder than it flees losers. Sirri and Tufano 1998. The inflow response to a great year dwarfs the outflow response to a bad one. So the assets pile in after the return, and the average investor return drifts below the strategy return by the behaviour gap. Over 30 years, Dalbar puts that gap at 2.84 pp a year. The strategy is not the problem. The seat the crowd takes is.