Mutual fund investors 'losing faith'?

The mutual fund industry shrank by $1.1 trillion in October (the last month for which we have data), to $10.7 trillion. Most of that was investment losses. But $127 billion of the drop was people cashing in their funds -- double September's decline -- and that includes a decline of $72 billion in net sales of stock mutual funds, the biggest drop in the industry's history. See Investment Company Institute data here.

Will Americans -- and other investors -- keep selling? Today's Wall Street Journal says middle Americans whose belief in the rising market survived every market shock since Ronald Reagan was president are finally "losing faith" -- since this looks like one of those periods in which stocks just don't rise:

"The Dow didn't return to its 1929 high until 1954," the Journal's E.B. Browning noted. Investors made a lot of money in the 1960s, but after a market peak in 1968 investors started to sell, and from "May 1972 through March 1980, total dollars in stock funds fell 42%. Mutual-fund executives worried that the industry might not survive." The Reagan recovery and the forced shift from old-fashioned pensions to self-invested 401(k) plans buoyed the market, and investors held on even as stock prices wandered up and down with no long-term gain, from the dot.com bust in March 2000. But September's collapse finally drove large numbers of investors to cash out. Story here.

There are still bulls, and bargain-hunters. Jeremy Siegel, the Wharton School professor whose book, "Stocks for the Long Run," with its cover chart purporting to show stocks tend to appreciate more than bonds or anything else over time, provided intellectual cover for the long bull market, told World Affairs Council members at the Union League last week that this is a great time to buy stocks -- since they're trading at less than 10 times earnings. If that's encouraging for long-term speculators, it's not much comfort for recent retirees who are spending their depleted principal.