Is This Good, or is This Bad, or Can We Really Tell the Difference?
As the market takes a pause from its recent string of new highs, the question investors are pondering is whether it will it resume its march higher, or perhaps turn negative.
According to the American Association of Individual Investors, bearishness among regular folks has just climbed to its highest level in over a year and second-highest in four years. But before considering rotating into “safe haven” investments, investors might instead consider that analysts actually view this as a contrarian indicator.
In other words, sophisticated professional investors actually are more optimistic the gloomier the regular folks get.
According to financial blogger Jani Ziedins, “When the market isn’t doing what the crowd expects, that means it is getting ready to do the opposite.” While not ready to predict a move higher, Mr. Ziedins suggests that is “far more likely” than an imminent collapse.
In looking at this chart you have the S&P500 shown by the blue line with the index values up the left side.
The red, very volatile line is the bearish sentiment reading of the AAII “regular folks” with the percentage of bearishness along the right side.
I italicize “regular folks” because I could not find any kind of definition of that term on the AAII website. I have to admit I didn’t spend a ton of time looking, but I feel it would be helpful to know what they mean by “regular”.
So, does this mean that the non-professionals are often wrong about this?
I’ll propose that they simply are much more emotional about it. And, in my experience, being emotional when it comes to investing is not a positive perspective to take.
Logic should rule. I know it doesn’t always, but it should.
Have an investment plan. Ideally it is a well thought out plan. Then stick to it.
Pretty simple to say. Not so simple to do.