Summary Comments: Majority market opinion is calling for a correction or using the industry’s most over used term, “overbought.” The current street banter seems to center on the theme equities are overbought, speculation is rampant and it’s a stock love fest. However, our experience is that we have never seen a significant correction when everyone is talking about how “overbought” the market is or how stocks are way “too extended.” We find it hard to believe that after hiding under a rock for nearly five years, that a few months of equity inflows means investors have gone from petrified to exuberant. That process in our opinion is a longer arc, not a singular event. While clearly markets can and will have pullbacks. We think the overbought chatter comes from many investors rationalizing aloud why they are under-invested.

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Category: Markets, Psychology, Think Tank

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2 Responses to “Majority Opinion About Equity Markets”

  1. bonzo says:

    “We think the overbought chatter comes from many investors rationalizing aloud why they are under-invested.”

    Perhaps true. This won’t be the first time I’ve been underinvested and partly missed a rally. Happened to me in late 2002 and again in summer of 2010. But I refuse to chase rallies unless the market is cheap, and it is not currently, not in the US at least. (I’m fully invested in Europe/Japan because those markets are fairly cheap.) Until we reach the final bottom, it is more important to avoid the big plunges than to catch all the rallies, and I’m pretty sure we haven’t seen the final bottom.

  2. This is a good one. Don’t fight the trend. As someone said, “the trend is your friend until it bends in the end”.