Investors Flee Mutual Funds and Run Off Cliff En Masse

Morgan Stanley Research published a report yesterday entitled “Highest Long-Term Mutual Fund Weekly Outflow of 2012″.  It’s time to buy.

Investors are notoriously wrong when they move as a large group.

There are many examples that I could give — buying tulips in Holland in 1637, selling Treasury bonds in 1994, buying tech stocks in the late ’90’s — but here was my first experience with investors not having a clue what they were doing.

It was 1989 and I was a rookie broker at Dean Witter Reynolds Inc.  I didn’t have any clients yet, but the buzz in the office was that all the clients were panicking and selling their junk bond mutual funds.  Now I’m not saying that cashing in was unwise — but I believe that for average investors to have purchased them in the first place was mind-bogglingly stupid.  (Is that a real word?)

The buzz was dying down.  Almost everybody had cashed in.  Then I got a B.O.D. call — broker of the day, when you’re on duty to take calls for brokers who are not present — and an old lady asked me to cash in her junk bond mutual fund.  I said to myself, “The fat lady just sang,” a phrase we would repeat over and over again in the decades to come when people were selling at the exact bottom of the market, or buying at the top.

I cashed in her fund, and that was, in fact, the bottom of the market.  I didn’t have any money to invest at that point, but junk bonds had a rebound.  Later, I think it was late 1991 — I’m older, forgive my memory — junk bonds crashed again.  At that point, I moved all of my 401(k) money into a junk bond mutual fund, and made a lot of profit on the rebound in a very short time frame.

The moral of the story is that when everybody is doing something in the investment world, they are wrong.  With investments, you don’t want to get a consensus opinion and run with that opinion.  You want to find someone to advise you who is brave enough to buy low and sell high, then pay attention to their degree of success, and join them.

I’m brave enough to buck trends, experienced enough to understand how stocks perform in various economic cycles — war, recession, etc. — and mathematical enough to glance at numbers and charts to know quickly whether a particular stock might go up in the near future.  Join me!  Subscribe today!

Happy investing!

Crista Huff

Goodfellow LLC