Posts filed under “Sentiment”
It’s the time of year when predictions are in order. Not by us, but by other people. We have spilled plenty of pixels on why forecasts are folly (see this, this, this, this and this); we won’t revisit that well-trod ground, at least not today. Instead, I wanted to discuss the rather annoying tendency of commentators to extrapolate market sentiment to well, infinity and beyond.
Two recent news items have reminded me that it’s time to discuss sentiment. The first was this weekend’s Barron’s Strategist Outlook; the second was the CFA Institute’s Global Market Sentiment Survey.
Let’s cut to the chase: Sentiment readings have very little correlation with markets, except when they reach extreme levels. I defy you to find anyone who has consistently made money off of the American Association of Individual Investors weekly sentiment readings; even on a monthly basis, they are so noisy as to be useless to traders.
In our office, we have been debating what it means when Barron’s survey of 10 top Wall Street strategists is devoid of bears. Collectively, they expect the Standard & Poor’s 500 Index to gain 10 percent next year. Their predictions range from 2,100 to 2,350 for the S&P (it’s now about 1,990), while they anticipate gross domestic product growth of 2.75 percent to 3.5 percent.
This could be taken as a contrary signal that we have become too bullish and are due for a major correction or worse. The problem is that strategists are bullish pretty much all the time, with very few bears showing up in most surveys.
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…Read More
Last week, I came across the following headline: “As music sales fall, sax player Kenny G turns to stockpicking.” My immediate reaction: Uh oh. The last thing any bull market needs is for celebrities to be featured in the financial press. As soon as that starts, it means the bull market must be near a…Read More
One of my favorite pastimes is dissecting accepted Wall Street wisdom to see if it contains any value for investors or traders. Often, upon examination, the widely held beliefs turn out to be closer to magical thinking than financial acumen. One of the more recent examples is the way some analysts use data on sentiment…Read More
This week in 1958: LIFE Magazine highlights a strange new phenomenon: The public is investing in the stock market as never before. “On the average,” reports LIFE, “500,000 new customers a year have been getting into the market and 8.6 million Americans now own some kind of common or preferred stock…. To an extent which…Read More
Earlier this week, Prudent Bear fund founder David Tice warned of an imminent crash — as bad as 30-60% down on the S&P500. One small thing: This is pretty much the same call that Tice made in 2010 and 2012. Apparently, if you make the same crash call every 2 years, most of the media…Read More
Bubbles, Bubbles Everywhere By John Mauldin August 15, 2014 Easy Money Will Lead to Bubbles Excess Liquidity Creating Bubbles Humans Never Learn Anatomy of Bubbles and Crashes A Few Good Central Bankers Jack Rivkin at His Best Dallas, San Antonio, and Washington DC The difference between genius and stupidity is that…Read More