Writing in the Wall Street Journal, former Morningstar analyst John Coumarianos highlights “investors’ self-defeating behavior” and suggests ways to correct it. He notes that Morningstar data shows a “negative ‘return gap'” of 1.8% over the past decade, and 1.6% over the past 15 years, “because of bad trading.” The return gap is the difference between a fund’s total return (which accurately measures a manager’s performance) and an “investor return” (also called “a dollar-weighted return”), which “evaluates how much of the fund’s return the average dollar invested in the fund has extracted” and thus “how well or poorly investors trade their funds.” The problem is that investors tend to buy high and sell low. To address this common mistake, Coumarianos says, investors can “set up allocations that don’t scare you when the market drops.” To counteract the confidence that normally accompanies a rising market, he suggests that investors “try to anticipate how a large stock-market decline will fell before it’s upon you,” which is known as “minding the ’empathy gap'” in behavioral finance literature. Further, Coumarianos notes that that “most of us are wired to be with each other [i.e., humans are social animals], but this characteristic can hurt us in some ways, including as investors.” Specifically, “our social interactions may make us want to be more exposed to stocks at precisely the time we should be rebalancing away from them.” His recommendation is to “be mindful of how much you may be influenced by social pressure and try to stick to a prearranged investment plan.”