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Home Our Perspective Mutual Fund Managers Got It Wrong … Again! by Claus Vogt 09-08-10
Mutual Fund Managers Got It Wrong … Again! by Claus Vogt 09-08-10 PDF Print E-mail
Written by Steve Meyers   
Wednesday, 08 September 2010 15:36

 

History shows that as a group mutual fund managers act like a typical crowd … susceptible to herding and group thinking.

They are most heavily invested near important market tops. And at market bottoms most of them turn bearish. That will never change … it’s human nature.

Hence it makes a lot of sense to look at what fund managers are doing — and take the opposite position whenever they are all doing the same thing. That’s why one of my favorite cyclical sentiment indicators is the average cash level of mutual funds.

Just look at the following chart. It shows the NYSE Composite Index on a monthly basis and the mutual fund cash level since 2005.

chart Mutual Fund Managers Got It Wrong ... Again!

Next, fast forward to today … READ MORE

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Ron Rebner |2010-09-08 15:57:26
That is a key reason why there is no volume, especially on up days. Everyone is all in. Volume ended up low, about 10 less than average on the NASDAQ and 20% less than average on the NYSE.
kritrdr |2010-09-08 16:06:43
So how do we know that the cash levels are low because they are invested as opposed to just pulled out and liquidated permanently? As in my case where I've liquidated all investment vehicles I could in order to protect my cash and invest in bullion. Could this be happening in high enough numbers to change the results of the above graph?
Ron Rebner |2010-09-08 16:27:15
Good point, you are right. One of the reasons for the low cash levels has been liquidations. Steve had some data on how there have been net withdrawals for quite a while. However, the end result still remains, they are fully invested. What can happen here is when futher selling occurs, and it will, the fund managers have to sell in order to get the cash to cover the liquidations. That then feeds on the selling. Thank you for pointing that out.
Kritrdr  - re: |2010-09-08 16:46:20
Yes that makes sense that even though some has left the table what remains is still invested therefore the stats are still valid, I appreciate the followup and clarification. This is a great site.
Ron Rebner wrote:
Good point, you are right. One of the reasons for the low cash levels has been liquidations. Steve had some data on how there have been net withdrawals for quite a while. However, the end result still remains, they are fully invested. What can happen here is when futher selling occurs, and it will, the fund managers have to sell in order to get the cash to cover the liquidations. That then feeds on the selling. Thank you for pointing that out.
NV  - Israel update to be continued |2010-09-08 19:04:35
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