Sure, sure, you've heard it before: Smart stock market investors hang on. They resist the temptation to bail out when the market is down or to cash in and live high when the market is up.

Trying to “time” the market, or move money in at the low points and out at the high ones, is too risky for amateurs, who are likely to get the timing wrong.

But what actually happens to people who do this?

Most studies of the market’s long-term performance assume holdings are left untouched through the decades, and that all interest, dividends and capital gains are reinvested. But now Morningstar, Inc., the market-tracking firm, has studied investor behavior, where the holdings are "touched" as opposed to untouched and they've reached some grim conclusions.

Take the CGM Focus fund (Stock Quote: CGMFX), for example, which produced annual returns averaging an impressive 17.84% for the 10 years ended July 31, investing mainly in large-company stocks. Unfortunately during this time the fund’s average investor lost 16.82 % a year.

The average annual return, which is the figure you see in most performance reports and advertising, tracks the fund’s share price and various reinvested gains. An investor could have enjoyed this return by putting money in 10 years ago and leaving it alone.

Morningstar's Surprising Findings

But many investors don’t do that. So Morningstar figured “investor returns” by looking at the flow of investors’ cash in and out of the fund. Obviously, anyone who put money into the fund just after it had a large gain would not see that gain in his or her results. And those who pulled money out after the fund price dropped would suffer the loss and miss any rebound.