I've been watching the Lipper charts in Barrons for a long time and in the last several months, outflows from mutual funds have been pretty steady except for muni bond funds. If you filter my site for Lipper, you can see the charts over the last several months in my posts.
I found this to be concerning. Since most investment done today is done by institutions and a relatively small amount is done by individuals, this trend shows that the herd effect is still firmly established. For those not familiar with the herd effect, it is a behavioral bias. Just like Buffalo, when fears starts to spread through the crowd, the crowd starts to run in a herd. In this case, the crowd is "investors" who are running for cover.
This article by the Investment Company Institute is showing analysis of liquidation being done in a large way. While Lipper confirms the exodus out of mutual funds, this article has information regarding ETF exodus as well. It confirms what I thought about ETF's, but I didn't have evidence previously.
This is one of the challenges of the investment portfolio manager. At times when they see opportunities to buy, they essentially have "the rug pulled out from under them." Having to meet liquidations hamstrings them from investing in favorable future investment opportunities. This is one of the primary factors as to why I invest in individual securities. When the crowd is running away, they will leave some nice opportunities for the LT individual investor.
Most investors should always invest for the long term. To that, I define the long term as 5 plus years. Buffett, who is in his late eighties, also defines himself as a long term investor. Trying to jump out and back into the market is a fools’ game. Very few will be successful in executing it. Usually, they will jump back in AFTER the market comes back and will have forgone some critical movements of the investment markets.
Often the best thing to do when everyone is running is to, at least, stay firm. Even better, it can be the opportunity to pick up some deals. Thank you very much!
Apple is a perfect example. Over the last year, it fell from the 230 range to the 140 range. Did the company’s outlook change that much? I don’t believe it did and now it is moving back up.
As your mom always told you. “Stay away from running with the crowd. It will only get you into trouble.” Thanks Mom. You might have thought I wasn’t listening, but I was.
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