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European Stocks Might Be Getting Too Frothy

One of my favorite reads every month is Merrill Lynch's global fund manager survey.

OK, I admit it. I'm a nerd.

But it can be a treasure trove for investors.

The reason? It tells you where the big money crowd -- the people managing billions of dollars at big pension funds and investment companies -- are placing their bets. These are the people who move the markets. So the information isn't just interesting in its own right. It also can point to opportunities to make money.

Which is, of course, the point of it all.

Sometimes you can spot an emerging trend before it really gets going. Other times you can find cases in which the big money crowd is already overcommitted in favor of a particular asset class. That can sometimes create great opportunities for big contrarian bets, especially when you realize the herd instinct among fund managers means they will all try to stick with the crowd -- even when they shouldn't.

My favorite all-time moment was in April 2003, when Merrill reported that global fund managers had become totally bearish about the Japanese stock market. They had dumped their Japanese shares in disgust, after years of underperformance, and pretty much given up on Tokyo.

"Fund managers are more out of love with Japanese equities than we have ever seen before," reported Merrill's then-strategist David Bowers.

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