When a particular mutual fund scheme, or a theme, significantly outperforms the broader market, they receive the highest flows. Inflows happen when valuations are inflated, and businesses are not likely to grow adequately to justify the valuations.
During such times, investors have made enough money on paper. But, they need to remember that these are only paper profits. While the investor feels content with the outcome, the only way the outcome can become a certainty is by booking profits.
Booking profits is important when one’s performance is distinctly outlier. What usually stops investors then is that they think there is no other equally good investment opportunity. What they miss is that such performance won’t repeat sequentially. They come once in a lifetime. Outlier performance presents before us only rarely. So having bought winning themes or a mutual fund scheme at the right time, the investor must act responsibly and take some money off the table to make it a certain outcome. That money will be available to invest in safer valuation zones where the market is not seeing such an opportunity.
Seeing opportunities where the market fails to see it will give the investor outlier returns. Shifting from past winners to future ones should be the priority for every investor. The market will only give us a limited time for execution. During that time, investors should act swiftly and execute sensibly.