Fund investors tend to sell low and buy high. They like the thrill of the chase. When the market is falling hard, they want out. When it is rising fast, they want back in. If they sold before the market fell more, or bought before it went substantially higher, this would be a brilliant strategy. Unfortunately, as several studies of long term mutual fund investor returns show, fund investors underperform by chasing the market's tail.
As we noted in mid-March when the Dow was dipping below 12,000 (mere days before the market turned back up), fund investors piled into money market funds. Now with the Dow on the verge of 13,000, the money seems to be coming back:'
Investors to money-market funds subtracted $34.53 billion in the week ended Tuesday, bringing total net assets to $3.416 trillion, according to the Money Fund Report."
Is this a flawless contrarian timing strategy? No. However, if you are not a buy-and-holder, you'd probably do better buying when fund investors are bailing, and cutting back when they are diving in.
Market Up, Fund Investors Back in
Fund investors tend to sell low and buy high. They like the thrill of the chase. When the market is falling hard, they want out. When it is rising fast, they want back in. If they sold before the market fell more, or bought before it went substantially higher, this would be a brilliant strategy. Unfortunately, as several studies of long term mutual fund investor returns show, fund investors underperform by chasing the market's tail.
As we noted in mid-March when the Dow was dipping below 12,000 (mere days before the market turned back up), fund investors piled into money market funds. Now with the Dow on the verge of 13,000, the money seems to be coming back:'
Investors to money-market funds subtracted $34.53 billion in the week ended Tuesday, bringing total net assets to $3.416 trillion, according to the Money Fund Report."
Is this a flawless contrarian timing strategy? No. However, if you are not a buy-and-holder, you'd probably do better buying when fund investors are bailing, and cutting back when they are diving in.
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