Posts filed under “Psychology”

Careful with Contrary Indicators

You want to be exceedingly careful with Contrary Indicators; Beware of anecdotal evidence, of the "this guy said that, and AJC said this" variety. Stick with quantitative data where ever you can.

Last week, the WSJ’s Justin Lahart mustered a few specific surveys worth reading:

"So which way is the crowd really leaning these days? According to survey results Merrill Lynch released yesterday, more U.S. fund managers think stocks are undervalued than overvalued. A survey from investment-research firm ISI Group showed that hedge-fund investors’ net exposure to stocks is at the highest level in nine months. A compilation of sentiment measures put together by Ned Davis Research shows that investors are feeling more bullish now than they have for most of this year.

For more details, have a look at this report I authored in 2003, titled Contrary Indicators 2000 – 2003 Bear Market.

Lastly, I would caution you that it is much easier, in my opinion, to see the contrary play at bottoms than it is at tops. To use an expression I learned in Texas: Wait til you hear the
bodies make a thud when they hit the pavement;
There’s hardly the same
obvious audible noise at tops.

When markets peak, you are trying to anticipate when buyers run out of cash (and no one cries out loud when they do). Perhaps a major sentiment change occurs that results in the Bulls putting their wallets away — but its one that is certainly hard to hear.

Most investors are better off sticking with the quantitative data, and steering clear of the anecdotal . . .

Lonely Are the Brave
WSJ, December 14, 2005; Page C1

Contrary Indicators 2000 – 2003 Bear Market

Category: Psychology

The Long Tail of Language

Category: Psychology

Goldilocks Economy? Hardly.

Category: Economy, Media, Psychology

Headlines versus Underlying Data, part II: Rare Rational Realists?

Category: Economy, Psychology

Vanguard: Nest Eggs Lack Attention and Diversity

Category: Investing, Psychology

Mixed Confidence

Category: Psychology, Retail

Apprenticed Investor: There Are No Shortcuts

Category: Apprenticed Investor, Investing, Psychology

WSJ: Housing Market Shows Further Signs of Cooling

Category: Psychology, Real Estate

What Moves Markets?

Category: Psychology

Ten Lessons to Be Learned from the Market Decline

Category: Markets, Psychology, Trading