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Christine Benz is director of personal finance and regular author on Morningstar.com a sister site of Morningstar.co.nz

This is supposed to be a sleepy time of year for investors, but August has been anything but tranquil. Amid worsening news about economic growth, employment, and the housing market, 300-point market swings--mainly to the downside--have become commonplace.

Such volatile markets can provide fertile ground for value hunters--for example, Warren Buffett's Berkshire Hathaway (BRK.A) (BRK.B)recently initiated a $5 billion stake in beleaguered banking giant Bank of America (BAC), negotiating very favourable terms in exchange for the stamp of credibility conferred by Berkshire ownership.

But while Buffett is heeding his own much parroted advice to buy when others are afraid to, that message hasn't resonated with many smaller investors. At an individual investor conference held in the U.S. last weekend, several attendees confided to me, with apparent pride, that they'd been out of equities for a couple of weeks. The data on fund flows also indicates that some investors are feeling defensive.

Outflows from open-end and exchange-traded European equity funds hit EUR1 billion in July, following an outflow of over EUR 6 billion in June. This is the first time since the autumn of 2008 that the European fund space has seen substantial outflows in two consecutive months. Investment appetite across the Atlantic has taken a similar turn. Outflows from open-end U.S. stock funds hit $23 billion in July of this year, the highest level of redemptions since the peak of the financial crisis in October 2008. Both these latest figures cover the period before the market volatility really began to pick up steam; I think it's a good bet that equity-fund outflows for August will be just as bad if not worse.

The fact that the SPDR Gold Shares (GLD) ETF, which owns gold bullion, has eclipsed SPDR S&P 500 (SPY), an S&P 500 index tracker, as the world�s largest exchange-traded fund is yet another indication of investor psychology right now.

Take a Slow Approach
Market participants on either side of the debate have staked out bold positions about whether the current sell-off represents a buying opportunity or whether the bad economic news is cause to run for the hills.

It's easy to find yourself compelled to take bold action, too. After all, some of the world's best-known investors have built their fortunes by making big bets at market inflection points, either buying when equities are in the dumps or retreating to safety prior to market crashes.