Follow the Money Trail

History and pop culture have given us many famous phrases and quotable moments:

Jedi Master Yoda tells us, “Do or do not.  There is no try.”

Everyone’s favorite grandmother, Clara Peller, wondered throughout the 1980s, “Where’s the Beef?”

And no one seems to know the full story behind those famous words uttered at The Battle of Bunker Hill:  “Don’t fire ’til you see the whites of their eyes!”

An oft-repeated lesson we’re taught early in our lives comes from the ultimate quote machine – Ben Franklin.  “Early to bed and early to rise makes a man healthy, wealthy and wise.”  If Uncle Ben (not to be confused with this Uncle Ben or this Uncle Ben) were alive today and he commented on investor behavior he’d likely say something along the lines of, “Buy high and sell low is the way to go…to financial ruin.”

Pity the poor retail investor.  We simply can’t get out of our own way.  We pile into “tech stocks” at ridiculous valuations and wait until AFTER the bubble bursts to sell.  We dump our stocks in the post-Lehman world and pile into bond funds only to miss out on a 100%+ jump in the S&P 500.

Are we setting ourselves up once again for heartbreak?  If today’s action following LinkedIn‘s IPO is any indication then the answer is an ominous one.

A better indicator is the flow of funds.  Where are we putting our money?  Are we throwing good money after bad by chasing “last year’s winners?”  Are we practicing “rearview mirror investing” by putting money to work in sectors and asset classes that have already had their run-up?

We offer as Exhibit A the following evidence.  Noted in billions of Dollars here are fund flows from 1999 through today: