At MarketWatch, Sam Mamudi has an interesting article about investor purchases of mutual funds. The article points out that when investors have been traumatized by a bad market-like now-they tend to wait around for a while before being confident about getting into the market once more.
The overall flow numbers also fit a pattern. This is the fourth bull market since 1987, according to Standard & Poor’s Equity Research. Each time, net inflows into stock funds have been slow to get going before jumping in the second year.
In the first 12 months of 1987′s bull market, for example, stock funds saw $16 billion in net outflows, but that was followed by a cascade of more than $4 billion in new money over the following year. A similar surge in 1990′s bull market: Net inflows were roughly $26 billion in the first year and more than $70 billion over the next year. And the first year of the bull market that began in late 2002 saw about $90 billion in net stock fund inflows, jumping to $190 billion in the second year.
Although 2009 was the best stock market in a decade, there was very little participation from mutual fund investors. That may be about to change during the second year after the trough. If mutual fund flows indeed pick up in 2010, we may see a better market than most currently expect.
