Look Out, Here Comes the Dumb Money

Posted by Ian Cooper - Thursday, January 20th, 2011

From The Wall Street Journal:

"Look out, stock market, here comes the dumb money!

U.S. retail investors pumped more than $6.5 billion into global and domestic stock funds in the week that ended Jan. 12, according to the Investment Company Institute. That’s the biggest weekly inflow to stock funds since May 13, 2009.

These flow numbers are volatile, and spikes of this size have almost always been short-lived in the past few years. It will take several more weeks of such inflows before any sort of trend can be declared.

But investors are clearly starting to get more comfortable with stocks after pulling money out of stock funds constantly between early May and early October last year. Since then, they have put a total of $9 billion into stock funds, compared with $3 billion in bond funds.

(Of course, bonds are suffering mainly because investors have been furiously throwing municipal-bond funds overboard — they pulled another $2.4 billion from muni funds last week and have taken more than $25 billion out since November.)

The key question for investors is whether this is a bullish sign, this new retail appetite for stocks, or something to make the contrarians nervous."

Read more here.

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