Hate to Burst Your Bubble
The problem of going with the flow
Unfortunately, “just before the bubble bursts” is often exactly when people invest.
In the chart below, the blue peaks and valleys show fund flows over the past 20 years. This tells us when investors got into or out of the market. The orange line shows how the market performed over the same period.
Money poured into equity funds during the dot.com boom at the beginning of the century. Investors bought high. Later, during the Global Financial Crisis, money poured out of the markets. Investors sold low.
Buying high and selling low is never a recipe for long-term success.
S&P/TSX Composite Index Performance vs. Equity Funds
20-Year Period Ending December 31, 2018
These charts are for illustrative purposes only and do not reflect the performance of any Franklin Templeton fund.
Sources: Tulipmania Dec. 1634–May 1637: Thompson, Earl A. “The Tulipmania: Fact or Artifact?” Public Choice, 2007; Roaring ‘20s Dec. 1924–Nov. 1929: Dow Jones Industrial Average;
Dot-Com Jan. 1997–Oct. 2002: NASDAQ Index; Real Estate Jan. 2002–Mar. 2012: Case-Shiller Housing Index.
Sources: S&P 500 Index: Morningstar; Equity Fund Flows: ICI. Flows are represented by monthly rolling 12-month net new cash flows. Indexes are unmanaged and one cannot invest directly in an index.