Posts filed under “Psychology”

Disbelief in Equities is What is Driving Them Higher

As a fan of investor psychology, I find sentiment intriguing. Measuring it is a challenge. We can’t trust what people say because they become bullish after they buy and bearish after they sell, convincing themselves that past trades were the correct way to go. Humans are notorious liars — especially to themselves. When they are not lying, they often can be found busy making excuses and other rationalizations for their actions.

Hence, we need to find more objective ways to view and measure sentiment.

That is why I find Jason Goepfert’s SentimentTrader website so intriguing. He follows an extraordinary number of indicators that track investor sentiment.

One of his recent comments has been making the rounds on social media. Paraphrased to remove the trader jargon and hyperbole, it read something like this:

The SPX has traded more than half a percent above its five-day moving average for 10 consecutive trading days in a row. In the prior 75 years, this has only happened twice — in 1982 and 2002. Each time it marked an end of a multiyear bear market. In other words, this is a rare rip higher that has only occurred previously at the end of multiyear bear markets. Each time it happened came after a mild, four-week drop. It’s incredibly uncommon and wholly unexpected.

The market condition that Goepfert is describing can best be called “persistently overbought.” As we have noted before, persistently overbought stock markets reflect strength and demand for equities, often in a period of deep pessimism. That’s seems like a pretty good description of current conditions.

I contacted Goepfert to see if he could provide more insight into what this unusual sentiment reading means. After all, sentiment measures are notoriously fickle, and tend to generate more noise than signal — the exception being when they reach extremes.

Which was exactly his point. On Oct. 15, SentimentTrader’s metrics reached just such an extreme. Out of 85 measures he tracks, 43 reached unusually high levels of pessimism all at once. That many metrics pinning the needle at the same time has only happened at other intermediate-term lows, according to Goepfert.

Continues here



Category: Investing, Psychology, Sentiment

Category: Psychology, Think Tank, Wages & Income

You Are Worrying About the Wrong Things

o, you are not going to die from Ebola. To quote a wag on Twitter, “More Americans have been married to Kim Kardashian than have died from Ebola.” But the latest scare does have a small positive: It provides me with yet another opportunity to lecture you about how incredibly dumb your lizard brain is. (It’s…Read More

Category: Investing, Politics, Psychology, Really, really bad calls

Nobel Prize-winning economist Robert Shiller talks with WSJ’s Jason Zweig about market valuations and investors’ expectations. (see full article WSJ)


Category: Psychology, Video

What If You Were the World’s Greatest Stock Picker® ?

Even if you could pick huge winners, could you hold them? Barry Ritholtz Washington Post, October 5, 2014       Let’s imagine for the moment that you are the World’s Greatest Stock Picker®. You have an uncanny talent for ferreting out “the next Microsoft” — companies that are on the sharpest edge of what’s…Read More

Category: Apprenticed Investor, Investing, Psychology

Wherein I Correct Nobel Laureate Daniel Kahneman’s Math

I am a fan of Morgan Housel, columnist at the Motley Fool. His writings evince a strong understanding of behavioral issues, and he has a gift of sifting through the nonsense to get to what really matters. Only on rare occasions do I get to disagree with him. Today is one of those times. Housel has…Read More

Category: Bad Math, Psychology

AAII Presentation: Brain on Stocks

The ongoing battle between you and that large, mostly under-utilized slab of grey matter resting atop your spinal cord, doing very little of anything (except keeping you alive…)   AAII Brain on Stocks Presentsation NYC 2014   Downlaod: AAII NYC 2014  

Category: Cognitive Foibles, Psychology

How Is Your Brain Interfering With Your Investing?

I am the guest speaker tonight at AAII’s NYC meeting in midtown. The subject: Why your brain is the source of nearly all of your investing errors, and what you can do about it. (Details here).   Click for more details   Should be fun!

Category: Cognitive Foibles, Investing, Psychology

Rapidly Changing Social Attitudes

Fascinating comparison of popular acceptance of non-traditional (in some jurisdictions, they were called “Deviant”) marraiges. Note how the slopes of the lines showing legality and popular acceptance have shifted. Not just change, but the rate of change has accelerated. This suggests to me a more progressive attitude on Social Issues. Add Marijuana legalization to the…Read More

Category: Current Affairs, Digital Media, Legal, Psychology

Trick Question: How Low Can Gold Go?

One of the things I like to do in all of my musings is to find some thing or person who is wrong about an investing-related subject, then trying to figure out where they went awry. On occasion, small pearls of wisdom can be derived from this analytical process, as in this discussion on narrative….Read More

Category: Gold & Precious Metals, Investing, Psychology, Really, really bad calls