Today’s chart comes to us from Patrick O'Shaughnessy, author of the forthcoming book, ``Millennial Money: How Young Investors Can Build a Fortune.'' O'Shaughnessy makes the observation that investing is “almost free” and investor behavior tends to matter more than their actual investments.

As an example, he cites this chart.

Source: Millennial Invest
Source: Millennial Invest

The chart shows fund flows into and out of equity mutual funds. It includes a 15-year period with two major market peaks and two major market lows. According to O'Shaughnessy, “inflows peak at the exact market top, outflows peak at the exact market bottom.”

This behavioral gap leads to a beta shortfall of about half of the total market performance over that 15-year period. If we were to compare the equity mutual-fund investors depicted in the chart with the Vanguard 500 Index Fund, we would have a compounded annual return of 4.25 percent a year for Vanguard 500 and just 2.29 percent for the active fund traders.

Call it negative alpha. Over time, the passive index returned 86.7 percent while the return for more active investors was 40.4 percent.

As Laszlo Birinyi has said, this market is unlikely to top out until we see the influx of emotional money again.

To contact the author of this article: Barry Ritholtz at britholtz3@bloomberg.net.

To contact the editor responsible for this article: Alex Bruns at abruns@bloomberg.net.