Some say that the best time to invest is at the point of maximum pessimism. The theory is that just at the point when the most people are sure that the world of stocks is collapsing, prices should be lowest, and this makes it the best time to buy stocks. Jonathan Chevreau’s fund industry report suggests that we haven’t reached the point of maximum pessimism.
Money usually flows into mutual funds during RRSP season, and so far this year is no different. January saw $1.17 billion more money flow into mutual funds than was withdrawn. However, this applies to all types of mutual funds collectively. It turns out that money market funds and bond funds were popular. Equity funds had net withdrawals of $376 million.
So, despite the fact that this is RRSP season, money is still flowing out of stock funds. Even though stock prices are low, there continue to be more pessimists than optimists. If you’re waiting for a sign that the point of maximum pessimism has been reached, this data suggests that we haven’t reached it.
However, I’m no fan of trying to predict the perfect time to jump into stocks. No bell will ring to let you know when the bottom has been reached. Many who try to time their entry will wait well past the bottom and buy at higher prices.