From Bernie Scaeffer’s Monday Morning Outlook (free subscription) that just hit my inbox.

In other news from the sentiment front, mutual-fund investors have been
feverishly withdrawing assets out of U.S. mutual funds. According to recent
TrimTabs data, the year-to-date outflow from domestic funds ($8 billion)
is on pace to hit its greatest level since 2002. Note that the 2002 fund
outflows occurred as the U.S. market was carving out a bottom after a prolonged
bear market that began in early 2000. Given the record inflows into U.S. equity
funds in 1999-2000, one certainly has to question the timing of this crowd.

Yep. They bought at the top in 1999 – 2000, and sold at the bottom in 2002. Billions and billions worth. Millions of retail investors, IRA and 401K account holders. And right on queue, the "little guy" is doing the same thing, right on schedule (and who’s buying the shares that the funds are having to liquidate in the face of fleeing capital?).

But there’s no doubt it’s hard to hold an asset that’s losing value right in front of your face. Say you have $200k in your 401K, which, if you’ve been plugging the $10k – $13k per year over the last 10 years into, is possible combined with the compounded gains and and tax-deferment advantage. Then you’ve just watched yourself loose $20,000 on paper over the last month.

Last week, I had to appeal to someone not to bail in an identical situation. We’ll see if I was right. However, if the correction does go much below the 10% it has already put in, I would have to seriously consider moving to cash and wait for subsequent lows to get back in — or get right back in if it looks like I fell for a trap. Bear in mind — no pun intended — that this concerns long term investing, not trading. If you’re trading, speculating, you can be in all cash at any given time.