Why you should be out of mutual funds during a Super Bear Market? 

The super bulls and bears are driven by mutual funds.  For example, during the last stage of the previous super bear, Home Depot (HD) went public.  When it did in 1981 it had little if any mutual funds who owned its shares.  As its concept became more popular and more profitable in the 1980s the number of mutual funds who purchased its shares grew rapidly from less than 100 to over 1000.  That ten fold increase in the number of mutual funds owning its shares drove HD’s share price by over 2000% from 1981 to 2008.  At the top of the super bull the amount of money flowing or the rate at which money flows into mutual funds lessens.   The result is a stall in momentum and a shift to net redemptions over purchases.  When this happens a company like HD is doubly impacted because (1) all of its original founders (the owners and managers who originally were motivated to generate the profits to increase the value of their shares) have sold all of their shares (HD did not even have a measly 1% of its shares held by insiders according to its recent shareholder roster) and (2) there are no new institutions who are lining up to purchase the shares. 

Thus, aging public companies who have experienced a multiplication of share price and in profit and revenue growth during 1982-2007 super bull and have reached maturation are no different than birth to death cycle of humans.  Therefore, those companies that were the darlings of the previous bull are destined to become the market’s pariahs during the subsequent Super Bear market.  This is the very reason why investors must seek “emerging” (low percentage of mutual fund ownership) growth companies during each and every super bear market.

Those emerging companies can be found in the online financial sector, which is the only area of the economy that I believe that investors should buy and hold.  It is the only sector of the economy, which is benefiting from the crash of the market and the economy.  Over 90 million U.S. mutual fund investors, who lost an average of 40% of their portfolios in 2008 now despise their broker and advisors.  As more and more of them leave their traditional advisors and join the “do it yourself investor trend” the online financial sector is sure to benefit.

For more information on my recommendations in the online financial sector and the prices at which I am recommending purchase go to www.bearmarketnavigator.com