Chapter 3. Fast Money on the Move

 

No matter what the markets say, traders are not machines guided by silicon chips; they are impressionable and imitative; they run in flocks and retreat in hordes.

 
 --—ROGER LOWENSTEIN, When Genius Failed
 

There are tons of people who are late to trends and adopt a trend after it's no longer in fashion. They exist in mutual funds. They exist in clothes. They exist in cars. They exist in lifestyles.

 
 --—JIM CRAMER

Large institutions controlling tens of billions of dollars, as we've seen, tend to move slowly and stick to their investment guidelines. Their substantial resources allow them to diversify by building positions in individual stocks.

Individual investors, by contrast, can move much faster—but may not have the resources necessary to build a diversified portfolio from individual stock positions. They may also share the common human tendency to chase trends at the wrong time, basing their investment timing on the wrong data.

It's possible to spot trends as they're happening, however. A careful look at exchange-traded funds (ETFs), inverse exchange-traded funds, and various types of mutual funds may help reveal what groups of individuals investors are doing and thinking.

Exchange Traded Funds

Perhaps the greatest change in the markets over the past ten years is the explosive growth and increasing popularity of ETFs. These funds trade like single equities, but are actually a basket of stocks, targeted to meet a specific purpose. The most heavily traded ...

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