"No warning can save people determined to grow suddently rich" - Lord Overstone

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The Bouncing Ball

Follow the bouncing ball.

Some no doubt recall going to the movies in your youth and watching commercials where a little white ball accompanied by music bounced along every word in an advertisement.

Willie Sutton, the notorious 1950s bank robber, was asked once during an interview after he had retired why he chose the bank robbing profession. Willie reportedly replied: "Cause that's where they keep the money." Dave Gardner, a hip before-his-time 1950s comedian, use to say that whenever anyone asked him if had lived in suchand such a town all his life, he would answer: "No, not yet!"

Another of Gardner's responses centered on a simple, almost-everyday occurrence, someone who loses his or her wallet and confides the sad news to a friend. More often than not the first response from the friend is: "Where did you lose it?" Gardner's reply: "If I knew where I lost it, I'd go find it." And years ago my old grandmother used to say: "Boy, why do you want to go out and look for margarine when you have butter at home in the refrigerator?"

In today's PC-dominated world such common sense thinking is about as rare as pachyderm sightings at the corner of Wall Street and Broad. For today's investors, however, where they put the money can be vitally important. From all indications retail investors have been for the last four or five years flocking to foreign equities markets.

When one area is attracting much of the lucre, it stands to reason that another is being shunned. And here we're talking about the U.S. domestic market. Orphans don't become orphans because everyone is coveting them any more than equity prices become cheap because everyone is chasing them. And here we're talking money flows.

According to recent data, mutual funds that invest in foreign equities are raking in money from the retail crowd faster than fire hydrants attract sniffing canines. Figures from the mutual fund industry's trade association, the Investment Company Institute, "show that, in the first nine months of this year, a net $71.2 billion flowed into 'international' (non-US) funds, while only $27.2 billion went into US-based funds," the Financial Times recently reported.

The article went on to point out that such inflows to foreign funds was already greater than the previous record set in 2004 compared with U.S. domestic funds where inflows are at approximately one-third of their 2004 levels. This trend, however, is hardly new, dating back to 2000 when inflows to U.S. domestic funds peaked just ahead of the ensuing bear market. Though some may play down the importance of mutual fund money flows, savvy investors need to recall that the retail crowd is usually wrong at the inflection points.

Much of this money has flowed into emerging markets that were once viewed as being much more risky. Such trends seemed to be based on two diametrically opposed emotions, lack of confidence on the one hand and increased fearlessness on the other.

For those of you with an ounce of contrarian blood coursing through your investing veins, you may want to keep it quite simple, just follow the bouncing ball and take a hint from those sniffing dogs. Sometime next year you just might want to start sniffing around the U.S. market.

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