(www.importmag.cn)Approximately 95 percent of investors and traders identify themselves as contrarians.
An equally approximate and complementary 5 percent actually comport themselves in
a contrarian manner.
Have you yet to hear a self-important financial swami getup on television and declare, “Yeah, I run with the herd. Get
a hunch, buy a bunch — you know the drill: I buy when everyone else is buying and sell when everyone else is selling.
How else do you propose I keep a 1-percent managementfee on other people’s money?”
Even more remarkable are the number of services who sell information based on the premise your fellow human
beings are dolts. These include private sentiment surveys,brokerages tallying up their clients’
positions, and even official readings such as the Commodity Futures Trading Commission’s weekly Commitments
of Traders (COT) reports.
The Investment Company Institute (ICI) collects data on flows into and
out of mutual funds. Similar data exist for exchange-traded funds (ETFs), but as the mutual fund data have a longer
history and are not changing as rapidly as the ETF data, we will confine ourselves to the mutual fund flows below.
What determines flows?
A presumption derived from herding behavior is, flows follow performance:
Investors are scared to buy at marketlows and then come storming in well after a bullish move is underway.
This seems so apparent on the face it scarcely warrants a cocked eyebrow. A corollary should apply to factors
affecting markets as well: In the case of the dollar, we should have every reason to expect American investors to keep their funds parked at home when
the dollar is strong and chase foreign assets higher when a declining dollar is making them more expensive.