Comments on: The rise of long-term thinking A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: TFF Thu, 09 Jan 2014 16:26:21 +0000 @diceros, he is looking at equity mutual funds. Most small-time individuals invest this way, so the cash flows for mutual funds are a proxy for this group.

If cash is flowing into equity funds, then somebody else is selling — presumably institutional and high-net-worth investors who invest directly. I’ve been steadily taking profits off the table over the last couple years, and I’m sure others have as well.

As you note, the small-time investors typically have terrible timing. Positive flows into equity funds is often a signal that the market is about to crash.

By: TFF Thu, 09 Jan 2014 16:21:52 +0000 “When the dot-com bubble burst, individuals (outside a core group of hobbyists) pretty much gave up on stock-picking and short-term trading.”

That’s funny! :) During the dot-com bubble and burst, I was primarily invested through mutual funds. Those funds were hammered over a two-year period, especially the actively-managed funds (from three different managers) that were purportedly conservative, value-oriented funds.

It was the dot-com bubble that caused me to question why I was paying other people to lose my money, and perhaps the biggest reason why I made an effort to learn stock-portfolio management (of which stock-picking is only one aspect). As a result, I did much better in the 2007-2008 crash.

By: wtpayne Mon, 06 Jan 2014 15:33:24 +0000 Putting the actions of individual retail investors to one side, let us look instead at the actions of the fund managers? Is the average asset holding period trending up or down for these huge funds?

By: dicerosMan Sun, 05 Jan 2014 14:39:45 +0000 Hi Felix,

pardon my ignorance, but I don’t understand how your conclusion about a renewed boom in long-term thinking flows from the evidence presented, particularly in light of the large amount of research that shows the average retail investor receives returns significantly below that of the average mutual fund because they push money into and take money out of markets at exactly the wrong times (e.g. Dalbar).

If anything, the flood of money heading into this fund should be a signal of significant caution about future returns!

Instead, the evidence is more consistent with another conclusion: that investors continue to abandon traditional actively managed mutual funds in favour of ETFs and passively managed index funds. This is also an ongoing “war” in the industry, but one where there does seem to be some movement in the trenches in recent times.

Finally I would note that for every buyer of stocks (e.g. The Vanguard Total Market Index Fund) there is a seller, some need to be cautious about any indications that “money is rushing into the market”. Unless we are talking about stock issuance, then the total amount of ,only invested in the stock market, or any other market, stays the same.