Exiting at the wrong time - the key investor mistake

Hat tip to Andrew Breer for highlighting this interesting chart of the Man AHL UCITs fund. Notice that money flows out of the fund on the drawdown, and it does not match when the performance turns around. This has been an age-old issue with CTA, but it also applies to many fund investments. Investors lose money and exit the fund, only to see performance turn around and miss the reversal. This seems odd, especially for managed futures, because trading odds are active and go both long and short. Hence, there can be losses, but positions may be cleared out and new positions established that are opposite to the prior risks taken. 

You are buying a system, not a particular investment. If you exit, it is because you no longer believe the methodology can produce position returns. We have learned that trend and momentum do generate long-term returns; however, there will be periods of underperformance. Investors have either been long-term holders or are willing to actively trade their positions, entering or increasing positions during drawdowns. 

There needs to be more research on the decision-making of investor and why or when they exit investments.