After sitting out much of the more than 100% rally since the lows of 2009, individual investors are finally starting to put money to work in stocks. According to Josh Brown of theReformedBroker.com, the cash coming into the market shows a public not only eschewing hotshot money managers but also crushing them at their own game.
"Professionals are probably going to come in after the public this time," says Brown. It's hard to believe at this point, but there was a day when it was mutual fund stars who dominated investor mind share. Then came hedge funds, with two or three outlying stars who capitalized on the housing market making it seem as though hedgies had a magical touch others lacked.
Mutual fund implosions at the beginning of the millennium and hedge fund superstars, like John Paulson, losing a ton of money for latecomers exposed the professionals. Now we've entered the age of investing cynicism where, Brown says, investors only know two things for sure: 1) they need to be in the market; and 2) over the longer term the vast majority of pros badly under-perform, especially after fees.
As a result of these epiphanies, fund flows are showing money flood into ETFs — the do-it-yourself investing alternative. Brown says $18 billion went into ETFs in September, and two-thirds of it was put into the SPDR S&P 500 ETF (SPY) ("Spyders"). ETF companies don't have superstars, just sectors and bare-bones expense structures, taking pointless fees out of the equation for oft-burned mom and pop investors.
"They aren't interested in having their assets shepherded by the, quote 'smart money,'" as Brown sees it. A Shepard without "sheep" doesn't have reason to exist. Judging by the money flows, investors feel the same way about mutual funds.