Smart Money and Public Investors Disagree – Again!

It’s not a surprise, or even unusual, to see public investors with a quite different take on the market than so-called ‘smart money’.

That divide has been quite obvious again in the current bull/bear market cycle. The bull market got underway in March, 2009 when Wall Street institutions, the trading departments of major banks, insurance companies, pension plans, and hedge funds began stepping back into the market, convinced the 2008-2009 financial meltdown had bottomed.

Meanwhile, the Investment Company Institute (ICI) says households are by far the largest group of investors in mutual funds. So if we use money flows into and out of mutual funds as a proxy for the activity of public investors, it was about that time, 2009, that public investors, distraught and devastated after holding on through the 2008 financial meltdown, finally began pulling money out of the market.

And that divergence between ‘smart money’ pouring money back into the market, while public investors pulled money out persisted as the bull market continued right up until last fall. At that time the Investment Company Institute reported money flows out of mutual funds had finally reversed to inflow.

The pace at which public investors had finally begun to pour money into mutual funds increased dramatically as we entered this year.

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