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HerdingAs social animals, it’s not easy to stand behind an opinion that differs from the majority. We areprogrammed to follow the crowd and tend to assume the consensus view to be correct. Unfortunately,when it comes to investing, herd mentality may significantly impact long-term results.The Problem of Going with the FlowIn the chart below, the orange line represents performance of the S&P 500 since December 31,1990 and the green shading represents flows by U.S. investors into equity funds. When the S&P 500performed well, there was an influx of money to equity funds (buying high)—and when the marketpulled back, investors withdrew their money from equities (selling low) and rushed into bond funds.U.S. Investors Following the Herd Historically Bought High and Sold LowS&P 500 Performance vs. Equity and Bond Fund Net New Flows 8S&P 500Equity & BondFund Flows$105,000S&P 500 PerformanceEquity Fund FlowsBond Fund FlowsBUYING HIGH$450 Billion$350 Billion$75,000$250 Billion$45,000$150 Billion$15,000$10,000Investment$50 Billion-$50 Billion-$15,000-$150 Billion-$45,000SELLING LOW12/1990 1994 1998 2002 2006 2010 12/2013-$250 Billion8. Sources: S&P 500: © 2013 Morningstar Research Inc.; Equity and Bond Fund Flows: Investment Company Institute. Flows are represented by monthly 12-month net new cash flows. Indexes are unmanagedand one cannot invest directly in an index. As at December 31, 2013.6 Time to Take Stock franklintempleton.ca