Are Investor Fund Inflows Highest at Market Tops?

Not too surprisingly, mutual fund investors tend to ramp up their fund purchases at the top of the stock market cycle. The below chart shows the one year forward return (blue line) along with the current period mutual fund flows.

 

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The result of this poor market timing is investors' long run returns tend to be lower than the market returns since they miss the top performing market days.

 

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It has been said a number of times in this recent market environment, that the best time to buy stocks is when it feels the most uncomfortable. October made this difficult to believe given the punishment the market took in that month. In fact, Friday's (10/31/08) positive market advance was the first time the Dow Jones Industrial Average recorded two consecutive up days since September 26.

 

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Overcoming the emotional aspects of the market can be tough; but perhaps investment opportunities are surfacing in this type of market environment.

Source:

• Stock Market: Exit At Your Own Risk ($), Market Analysis, Research & Education, October 16, 2008. (A unit of Fidelity Management & Research Company)

Comments

[CLH:]

Buying during panic lows is always profitable as you show.

2008 Nov 02 02:00 PM

[wdhalgren:]

"the best time to buy stocks is when it feels the most uncomfortable."

I agree, and predict that investors are going to get some incredibly uncomfortable moments to profit from in the next three or four years. There's no rule that says "now is the moment of maximum discomfort for this cycle". I'll pass on the current bit of froth.

2008 Nov 03 06:55 PM