How Fear Rules the Fund Flock

At T. Rowe Price's annual investment briefing earlier this month, (PRGFX Quote)Growth Stock fund manager Robert W. Smith worried aloud about investor short-sightedness, saying, "Individuals must stop renting stocks and start owning stocks again."

Smith said this trader mentality heightened market instability, and his point was well-taken. Then again, so was a question put to Smith by a reporter: "When do you think fund managers will stop renting stocks and start owning them?"

Smith, the subject of a recent 10 Questions, might be the wrong manager to ask -- his fund has topped the market and most of his peers during the past 10 years while keeping expenses, risk and turnover fairly low. But the discussion illustrates a key point: Money managers, far more than often-blamed individual investors and daytraders, deserve the lion's share of the blame for the market volatility of the past several years, because of their "herding" mentality and performance-chasing. And if the past few months are any indication, plenty of money managers are still acting like traders.

Herding

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