Thursday, August 03, 2006

Mutual Fund Investors Flee Equities

Investor's Business Daily: Mutual Fund Investors Flee Equities

My favorite part of this article is as follows:

"If there's any solace in the weak showing for June, it is that mutual fund investors, as a group, are as wrongheaded as most investors. They tend to be selling at market bottoms and buying excessively at market tops.

June's net outflow was the first since February 2003 when investors took a net $10.88 billion out of stock funds. It should be noted that a substantial rally began in March.
Even that number pales in comparison with the net outflow of a record $52.61 billion in July 2002, near the tail end of a three-year bear market.

The most money ever put into stock funds in a month was $53.68 billion in February 2000, just as the stock market was hitting a bull-market high and just before the S&P 500 began a 50% plunge and the Nasdaq was about to see 75% lopped off its value."

My point is that following trends, especially mutual fund inflows and outflows is probably only valuable if you do the opposite of what you believe the flows are telling you. Most people sell when they should be buying and buy when they should be selling. Don't follow the crowd, they are historically wrong.

Scott Dauenhauer, CFP, MSFP