I am sensing fear. Last week, individual investors redeemed some $2 billion from their funds. In the overall picture, this amount is not that much, but it is an indicator that the current environment is breeding more pessimism than optimism. Once again, here is the current environment …
There are lots of things weighing on the market this month. Earnings season has wound down for one thing, which often leads to a corrective phase in the markets. Summer is also fast approaching, along with the end of QE2 this June. The European debt situation continues to make headlines. And our own debt limit has those in Washington scrambling for a solution to our home-grown problems. Top this off with rather lack-luster economic data …
I find this all quite fascinating, frankly. In recent months, I have noted that many contrarians have been saying that because bullish sentiment was so high, it meant that a reversal was coming. Now, mind you, they were saying this as the market pushed through all obstacles to go higher. Yes, they just kept saying it, and, lo and behold, the market is reversing to a degree. Here’s one thing I find fascinating – if you predict the world will end day after day, eventually you will be correct.
Here is another thing I find fascinating, and this goes back to an article I wrote for a magazine some time back – the increased flow in and out of mutual funds is a sign of the times. The gist of my article was that the days of simply putting your money in the hands of a financial advisor and then forgetting about it were over, if you are smart, that is.
I wrote then that one needed to understand where his or her money was at all times. I wrote that one should learn the language of investing so one could talk fluently with whomever controlled their money. I encouraged folks to become educated, to take an interest in economic matters, to do some research so they could direct the movement of their money from fund to fund depending on the overall money flow. I wrote that the days of buy and hold were over.
Well, I don’t know if folks removing their money from mutual funds is because they are acting sensibly, or if it is simply fear of losing it. What I do know is that as more pessimistic tones creep into our daily information flow, the more I sense fear. Moreover, I must admit, I can see reason for fear. Certainly, I have contributed to that with my strong admonitions about the politicking of our national debt.
Perhaps, though, the fear is less about the current economic or political environment and more about distrust. As the media pounds the “bad” news, it reminds individual investors of those dark days back in 2008. In short, because of the 2008 market collapse, individual investors no longer believe in buy and hold; they now believe in buy, watch, and get out if they sniff even a hint of smoke about strong, downward market movement. In any case, the title of my article back then was “Have You Hugged Your Money Today?” Well, have you?
Trade in the day – Invest in your life …
