-- Q: Is there a good way to find out how much cash regular investors are putting into or taking out of the stock market?
A: Regular investors are infamously bad investors. They get fearful when they should be greedy and greedy when they should be fearful. And that's why it can be instructive to see what most people are doing, so you can do the opposite.
Sadly, many regular investors allow emotion to run their investment portfolios. When stocks are falling, rather than boosting their investment, they get scared and pull out. Then, they stay scared too long, and wind up missing most of the recovery, only piling back in when it seems safe. Unfortunately, when markets and the economy seem solid, that's often the worst time to invest.
How can you capitalize on the lack of wisdom of crowds? There are many ways, but the easiest is to follow stock mutual fund flows. Generally, when you see cash pouring out of stock funds, you should be encouraged. That could be a sign that investors are throwing in the towel and setting up stocks for a recovery.
You can look up the amount of money coming into and out of mutual funds free online. The data are available monthly, which isn't ideal, but you can still get a good idea of what's going on.
The data are provided by the Investment Company Institute, in the Statistics & Research section of the website. The September numbers, released Oct. 30, are telling. They show investors couldn't get out of the stock market fast enough in September, see the data here. Scroll down to stock funds' Net New Cash Flow.
Stock funds suffered an outflow of $72.3 billion in October, after a $56.4 billion outflow in September. And so far this year, investors have pulled a net $195.4 billion out of stock funds.
As you can see, the herd is clearly getting out of stocks. Its up to you whether or not to join the stampede.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at firstname.lastname@example.org. Click here to see previous Ask Matt columns.