On the very day that she sounded the alarm (Meredith Whitney:  Municipal Bonds Could Collapse), municipal bonds (as measured by the MUB ETF) changed course and have since increased nearly 10% on price alone (not including fund distributions).

"The only function of economic forecasting is to make astrology look respectable."

-- John Kenneth Galbraith

According to a study by Fidelity Investments,

"Participants in 401(k) savings plans who dumped stocks from Oct. 1, 2008, to March 31, 2009, when the Standard & Poor’s 500 Index fell 31 percent, and hadn’t returned to equities as of June 30, 2011, had an average account balance increase of 2 percent, according to the study released today. Those who maintained some equity allocation during that period saw their balances rise 50 percent on average."

And this happens consistently as countless studies have shown that investors returns trail fund returns and fund flows confirm investors predisposition to buy high and sell low.  Sigh.

Read the whole story:  Selling burns 401(k) investors who dumped stocks

The largest gains often occur when they are least expected.

"Consider the case of an investor who found out that he was overconfident of his ability to stand the stress of the kind of bear market we had in 2008. By November 20 of that year, he realized he had overestimated his willingness to take risk. He sold out of stocks with the S&P 500 closing at 752. His plan was to wait until the market had been up for more than 30 days (or when the green flag would be up).

With the S&P 500 closing at 903 at the end of the year (and having missed out on a rally of 20 percent), he buys again, believing that it was now safe to get back in. Unfortunately, the market dropped another 25 percent by March 9 and he had enough. Do you think this investor will ever be able to buy again? And of course, unless he had, he missed the greatest market rally in 70 years. One of the problems with market timing is you have to be right twice, not just once."

The state of Washington scored the highest marks (3.92%) over the last decade for state pension funds with greater than $20 billion in assets, according to a Bloomberg survey.

Sadly, they all woefully underperformed the Vanguard Balanced Index fund (4.79%) over the same period (lost decade?  really?).  An indexed strategy that included small allocations to the Vanguard REIT index fund (10.99% over the decade) and the Vanguard Small Cap Index fund (7.41%) would have blown the state pension funds away by an even higher margin.

As usual, there's more money to be made "selling the system" than there is in the system itself.

Three rock star fund managers, Bruce Berkowitz, Kenneth Heebner, and Bill Miller, are competing for last place as "their bets on an economic expansion backfired."

"Bet" is the operative word.  Heebner's fund was 36% invested in auto stocks at the end of 2010.  Berkowitz's fund had 74% of its holdings in financial stocks as of Feb. 28.
Miller's fund fell 0.5% through June 9, trailing 94% of rivals, according to Bloomberg data.

"Managers don't go from geniuses to idiots overnight" said Russell Kinnel, director of mutual fund research at Morningstar.

True. Gambling has little to do with intelligence and much to do with luck.  And apparently theirs has run out.

Investment News:  Berkowitz, Heebner, and Miller in tight battle -- for last place