Whenever Ben Bernanke speaks to the media, or stocks wobble, or interest rates rise, you are seeing investors do the kneejerk.
The kneejerk is not a new dance step. It's an emotional response that indicates investors are thinking and acting short-term. In 2012, the kneejerk caused $156 billion of net cash to flee long-term U.S. equity mutual funds, according to the Investment Company Institute. In June of 2013 alone, it drove $80 billion of net cash out of long-term U.S. bond funds (mutual funds and ETFs), according to Trim Tabs Investment Research.
The kneejerk has several root causes including the tiny attention span of today's financial media, the volatility induced by hedge funds and high-frequency trading (HFT), and the fixation on interpreting every nuance of central bank policies.
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