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A History of Mutual Funds

Published on: May 08 2017

This is a republication on the web of a magazine article from 1999. It’s fairly brief, but it highlights some key points in mutual fund history in the U.S. I’ve always believed a good investor is a good historian. It’s important to take long-term perspectives such as this.

Fund managers themselves are feckless forecasters. One of the easiest ways to measure managers’ views of the future is to count their cash; when funds hold 10% or more of their assets in reserve, they are bearishly waiting for stocks to turn cheaper. When cash is low, at 5% or less, bullish managers have already spent most of it on stocks.

Over time, you can use fund managers’ cash positions to forecast the market’s returns with remarkable accuracy — as long as you do the exact opposite of the managers. In 1951, for example, cash balances in stock funds set their all-time record high of 15%; over the next decade, stocks grew at 16.4% annually, among the biggest gains the U.S. market has ever produced. And when did cash positions hit their record low? In 1972, when they shrank to just 4.2%; that’s the most optimistic fund managers have ever been. Over the next two years, U.S. stocks lost 37% of their value, the worst loss since the Great Depression.



February 2021:

Congress Comes for your Retirement Money

A devastating new law has just been enacted, with serious consequences for anyone holding an IRA, pension, or 401(k). Fortunately, there are still steps you can take to sidestep Congress, starting with this ONE SIMPLE MOVE.

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