Here's a bullish sign: Mutual fund investors have been throwing in the towel. Spooked by a decline of 36% in the S&P 500 this year, they have yanked $175 billion from stock funds, according to TrimTabs Investment Research. Nearly a third of that, or $56 billion, flew out the door in the first half of October.  The year's redemptions represent only 3.2% of the $5.5 trillion invested in stock funds. But 2008 is the first year when equity fund flows have been negative since--get this--the end of the last bear market in 2002.  An aberration? Hardly. History shows that small investors are a wonderful contrary indicator, selling near the bottom of market cycles, when pessimism is greatest, and then buying at the top.  In November 1980, just as a bull market was ending, investors sank $301 million into stock funds. In September 1982, after the s&p 500 had dropped 27%, $443 million gushed out--just as one of the biggest bull markets in history was about to take off.  At the peak of the last run-up, in March 2000, $40 billion rushed into stock funds. Then, in October 2002, after the S&P 500 had fallen 49%, $8 billion rushed out (see chart). The bleeding continued until the following March, by which time stocks were in recovery mode.  Avi Nachmany, who heads up Strategic Insight, a New York fund research firm, says now is a great time to invest for the long term.  "Stock fund investors should be concerned about depressed fund prices only for the share of their wealth they plan to use soon," he says. "Those who will be net buyers in the coming years, and keepers for the long term and during many years of retirement, should find these price declines a buying opportunity."  Thomas Forester, who runs the no-load Forester Value Fund, is buying as much as he can. His large-cap value portfolio has beaten the s&p by 4.5 percentage points annually the last five years. Impressively, in a horrible year for investors, Forester is down a mere 0.5%.  "I'm lucky to have patient shareholders who aren't panicking," he says. "I'm actually getting some net cash in every day." He's also putting to work cash he had set aside earlier this year when he felt the market was pricey.  Chief among Forester's recent buys are financials, like Travelers and Allstate (nyse: ALL - news - people ), which he views as irrationally beaten up amid a drubbing of insurance stocks. He also bought UnitedHealthcare, which he believes will come out a winner despite uncertainty over postelection health care policy.  Forester expects the s&p 500 to rise a third from recent levels to 1200 by year's end. Still, he concedes, the Columbus Day surge is not a definitive end to the bear market. The s&p 500 may test its low once investors digest details of the global credit bailout. If it does, regard the decline as a buy opportunity.  He offers a tip: Once you have decided to buy a mutual fund, wait until late on a particularly bad day. Had you put in a buy order for an s&p 500 index fund by 4 p.m. on Oct. 10, you'd have gotten the day's closing price of 899. If you'd waited five more minutes, you'd have paid 11.6% more for the next trading day's close of 1003. It's fine to wait until the last half hour of trading to gauge the market and place an order--but then make sure your bid is in (and confirmed) by 4 p.m.  He also suggests that you spread your buys over several days, or weeks. That way you won't get caught putting your entire investment in on a day when the market looks cheap but is about to get cheaper still.  Subscribe to Forbes and Save. Click Here.
Small investors have been rushing out of stock funds. They can be counted on to be inept in their timing.