When everyone follows the winners, investors can lose

On 10 June 2000, London opened the Millennium Bridge. Around 90,000 people crossed it that day, with 2,000 on the deck at once.

It began to sway sideways.

Each person adjusted their steps to stay balanced. But everyone adjusted in the same way, at the same moment. Those corrections pushed the bridge further, prompting even more people to correct.

The bridge closed after two days. Engineers found that just 160 walkers could set it off. The bridge was well built, but what made it unusable was that thousands of individually reasonable decisions, taken together, added up to an unreasonable outcome.

I think about that bridge whenever I see investors buying what has already done well. When everyone does it together, it stops being sensible.

The winner's churn

A recent media analysis ranked 20 mid-cap funds over two consecutive five-year periods. The fund ranked first, earning 21.2% annually, finished last at 12.3%. The fund ranked 19th, earning 12.2%, finished first at 22.8%. Of the first period's top 10, only five stayed there. Our own fund, DSP Midcap, went from 11th to 18th, and DSP Flexi Cap from 6th to 15th.

When we ran a similar test across five equity categories, our analysis found that 60% to 83% of top-quarter funds dropped out over the next three years.*

We treat a fund's past returns like a scooter's mileage claim. If it promises 70 kmpl, we expect at least 50. A fund delivering 20% feels like a promise of 15%. But unlike a scooter, a fund's opportunity set changes. The average fund manager in India has run their current fund for about two and a half years, so the 10-year record you are buying often belongs to someone else.

Chasing categories can be worse because money arrives in floods. Infrastructure funds earned 33.8% annually between 2004 and 2009, but investors earned 6.2%. Almost three-quarters of all money arrived just before the peak.

Small-cap funds earned 14.8% annually between 2013 and 2020. Investors lost 1.6%. Technology funds earned 17% annually since 2019. Investors earned 7.6%. Momentum funds earned 15.1% since 2021. Investors earned 3.2%.

These are the sharpest examples, but the gap always runs in the same direction, and it is always the investor who pays it.

The crowded trade

Step back further and whole markets do the same thing.

Japan peaked in 1989 at 65 times earnings. Investors waited 35 years to recover. China peaked in 2007 at 49 times earnings and remains below that peak. America peaked in 2000 at 28 times earnings and took 12 years to recover.

Each had been a winning market, but each was bought at a high price.

Economists call this the winner's curse: in an auction, the winning bidder has usually overpaid. In October 2024, India's outperformance against emerging markets was its widest in 27 years. In 2025, India returned 4%, South Korea 101% and Brazil 50%. In under two years, India went from the market every investor wanted to the one few did.

Earlier this year, I wrote about the January rush into gold and silver. The fuller picture is now in.

Silver rose 98% through August 2026. The average Indian investor earned 18%. The biggest buying month, at ₹11,761 crore, was January, right at the top. By July, over half the previous year's investments were losing money.

Gold ETFs were net sellers between 2021 and 2024, when gold was cheaper. They became buyers in 2025, after prices doubled.

Build your dampers

The Millennium Bridge was never rebuilt. Engineers fitted dampers underneath it, steel springs that soak up movement so a crowd's footsteps cannot build on each other. It reopened in February 2002 and has been full of people ever since.

You cannot stop the crowd from walking in step. You can fit your own dampers.

The first is deciding your asset allocation before choosing a single fund. Over 20 years, a portfolio with half in Indian equity and the rest spread across bonds, global equity and gold earned 12.3% a year. Indian equity alone earned 11.7%, with about twice the volatility. When one part has a spectacular year, rebalancing trims it for you automatically.

The second is accepting that how much you save is in your control, not what you might earn.

The third is investing every month and accepting that it will feel wrong for long stretches. Of every 10-year SIP in the Sensex since 1997, 99% ended ahead of debt. But 81% were in loss at some point along the way, and the typical one trailed debt for more than a year. A SIP works as a method, but only if you keep walking.

Beyond that, judge a fund over a full market cycle, not three years, and look at who is actually running it today. When a category earns several years of returns in a single year, that is usually the moment to add less, not more.

The people on that bridge were not foolish. Each one made a reasonable choice. That is what makes this so hard. Chasing past winners never feels like a mistake while you are doing it.

*Data from Netra Jan 2026 edition.

Kalpen Parekh is MD & CEO of DSP Mutual Fund.