Brett Arends’s ROI: Top investors dump stocks — why that might mean you should buy

I’ve written about the M.B.A. herd many times before, and they just keep on keepin’ on. According to the latest monthly Global Fund Manager survey from Bank of America, the big money crowd stampeded for the market exits right after Russia invaded Ukraine.

They tell the survey they are now holding the highest amount of cash in their portfolios, and are taking on the least amount of risk, since. April 2020.

You remember April 2020, right? It was the moment right after the Covid crash, and stock markets were really low.

What a great moment to hold lots of cash and take very little risk!

The Vanguard Total World Stock ETF VT, +1.06% since then: Up more than 50%. 

Cash: Bupkis.

Genius.

A top M.B.A. these days costs about $150,000. Cheap at twice the price!

The survey polled more than 300 top investment officers around the world, managing more than $1 trillion in pension fund assets and other investments. The poll was conducted from March 4 to March 10.

The survey gets more interesting the further one reads. For instance, the money managers aren’t bearish on everything. They told the survey that they were bullish on energy prices, and were absolutely overloaded in their funds with oil and other commodities, along with energy and resource stocks.

The poll, of course, was conducted before this week’s collapse in…er…. Oil and other commodities, and energy and resource stocks. Oops.

And when it comes to the stock market, they seem to have dumped pretty much everything except the S&P 500 SPX, +1.17% index of big U.S. companies. So they have sold out of European stocks (because, well, Putin could invade France, right? I mean, you never know!) They are also out of the other major international markets of London and Tokyo (ditto, presumably).

Let the record show that at the start of the year, just three months ago, these guys were bullish on Europe and were overinvested in the region. What are the odds?

Oh, and they are out of small-caps. A net 61% believe big company stocks will do better than small-company stocks over the next year. And the number of money managers predicting a bear market this year has doubled to 60%.

This is no accident. These people move markets because they handle so much money. They tend to think alike, because most of them went to the same schools. And their top job isn’t to make money for their clients, but to avoid getting fired. So they would rather take a high probability of mediocrity than a small probability of embarrassment.

Net result: They all tend to sell the same stuff at the same time, their decisions are not based primarily on value, and their sales drive down the prices. Therefore, there can often be a great opportunity just taking the other side of the trade, so long as you are handling your own money, and you understand that you are taking on risk.

Bank of America cautions us that while the trillion-dollar crowd has turned bearish, there aren’t yet signs of what market veterans call “capitulation”—the kind of moment when absolutely everybody seems to have given up and markets don’t fall any further.

The problem with that is that real moments of clear capitulation come so rarely you could go to your grave waiting for them. Nor, for that matter, does anyone ring a bell and tell you it’s happened.

Where does this leave investors?

Market veterans say it is a fool’s errand to try to pick the bottom of the market. If you bought into the Covid crash in March 2020 too early you could have lost 25% of your money, or more, before things turned around and you made bank. As they say, the stock market typically goes down in an elevator, i.e., fast, and goes up in an escalator, i.e., slow. Don’t buy unless you are willing to stop looking at your portfolio and leave it for years.

But if you thought this was a good time to buy European stocks, other international stocks, and small-caps, I wouldn’t necessarily tell you that’s the dumbest idea in the world.