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NEW YORK (Reuters) - Mutual fund investors poured money into bond funds, albeit at a slower pace, in the latest week and continued their exit from U.S. equities, data from the Investment Company Institute showed on Wednesday. The bond fund category -- which include corporate, junk bonds and government debt -- had net inflows of $5.66 billion for the week ended March 21, said ICI, a U.S. mutual fund trade organization. While still elevated, the inflows were less than the previous week's inflows of $9.1 billion. These funds have been drawing investors, with the Federal Reserve's commitment to keep interest rates at ultra-low levels in the face of a strengthening U.S. economy and as an overall reach for yield pushes investors out the risk curve.

Conversely, equity funds had yet another rough week. They had net redemptions of $1.08 billion for the week ended March 21, following net redemptions of $2.58 billion the previous week, as the S&P 500 registered a modest 0.62 percent rise over the reporting period. Also, tax-free municipal bond funds had redemptions of $135 million, their first redemptions since August of last year.

So, tell me if you can. Do you really think that, this time, investors have, finally, gotten their market-timing right and that they are buying when smart investors should be buying, namely, when prices are low, or are they merely doing, once again, what they always do, namely, buying the top? As one commentator writes:

Going back to the early 2000's, our friends at Dalbar have been conducting a study to determine whether investors’ investment decisions impacts their investment performance. Unfortunately, it does. In a BIG way. As with every year’s study so far, the results illustrate a big difference in what the S&P 500 gained versus the average equity mutual fund investor. The results of the twenty year numbers ending 12/31/10:

S&P 500 – 9.14%
Average Equity Mutual Fund Investor – 3.27% The problem is, the 5.87% ‘behavior gap’ is actually an improvement over many years’ results. Additionally, now that many people have gone through the “Dot Com” and “Mortgage Crisis” bubbles, people are learning to avoid some of the behaviors that result from the greed and fear we experienced during those periods. In reality though, we see these harmful behaviors more often than not when working with investors. If we simply remember that human nature can often tell us to do the wrong thing at the wrong time, we can help ourselves and our portfolios.

Or again:

BOSTON, MA--(Marketwire -03/19/12)- While the volatility of the 2011 markets ended with large gains for bond holders and a small profit for equities, the mutual fund investor did not fare as well.
Equity mutual fund investors gave up on the markets shortly before the year-end recovery and suffered a loss of 5.73%, compared to a 2.12% gain for the S&P 500. This erodes the long-term gains that began to recover from the devastating losses of 2008.

The unprecedented ups and downs of 2011 drove up the aversion to risk and investors succumbed to their fears. They decided to take their losses instead of risking further declines. Unfortunately, as is so often the case, this occurred just before the markets started on a steady trek to recovery.

Or yet again:

Investors Behaving Badly?
Market research firm DALBAR recently published its annual Quantitative Analysis of Investor Behavior, which analyzes mutual fund flow data to gauge the effect of investor behavior on performance. The 2011 edition finds that investors tended to realize performance well below that of the market as whole. DALBAR figures that over the 20 years ended in December 2010, the S&P 500 Index enjoyed average annual returns around 9%, while equity investors averaged a little less than 4%. It was a similar story with fixed income, where the Barclays Capital U.S. Aggregate Bond Index had average annual returns near 7%, while individual investors realized returns closer to 1%.

DALBAR puts this performance disparity down to poorly timed investor buy and sell decisions—rather than long-term, buy-and-hold strategies, DALBAR found that investors held their stock and bond mutual fund accounts for a little more than three years on average. The study concluded that “investment results are more dependent on investor behavior than on fund performance. Mutual fund investors who hold on to their investments are more successful than those who time the market.”

Now comes the crucial question. Are such articles offering sound advice, or are they merely trolling for clients?

Nah, financial advisers and mutual fund companies would never do such a despicable thing, would they?

My take is this. There is no investor who doesn't try to time markets. No matter what you say or think otherwise, a decision is made to buy/sell (or not) now rather than later, for whatever reasons and by whatever methods. Some of those decisions might prove to be good, or bad, or indifferent. But timing decisions were being made for which investors are refusing to accept responsibly, but suffering the consequences, which is the worst of both worlds. They choose to learn nothing from their mistakes and then proceed to repeat them. (Isn't that one of the definitions of insanity?)

A further take. If mutual fund cash-flows are a good contrarian indicator, especially at price extremes, now is definitely the time to be thinking about getting short, especially when prices clearly break to the downside from their current, trading-range channel. Until that happens, one should stand aside. But now is mostly definitely not the time to be rushing to put new money to work in a clearly over-bought asset-class.

Did the father of value investing, Ben Graham, time markets? Read him to find out, and then do the same, unless you're really, really sure that you know better and have the track record to prove it.
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