Sentiment Measures Are Not Reliable Investment Cues

The topic of market sentiment and how it manifests in stock price shifts and investor behavior is addressed in this week’s Enterprising Investor. In today’s post-election market, the article points out that sentiment measures have increased. “A recent Investors Intelligence Sentiment Report registered 65% bulls—not an extreme reading, but above the roughly 45% average.” The […]

Think Twice before Listening to the Pessimists

During these post-Brexit days when hanging crepe seems to be the favorite pastime, one has to wonder why so many folks default to gloom-and-doom scenarios. Morgan Housel of The Motley Fool explains it this way: “Pessimism isn’t just more common than optimism, it also sounds smarter.” When it comes to investing, Housel differentiates between perceptions […]

When the Going Gets Tough, the Rich Take a Hike

A new study has found that folks in the top 0.1% tax bracket run for the exits fastest on the days when market volatility spikes (according to government data collected in 2008 and 2009). According to Bloomberg News, the idea behind the study was that different people react with varying degrees of urgency amidst signs of trouble, which can in turn feed market meltdowns. So why do the […]

Avoiding the Negative Return Gap

Writing in the Wall Street Journal, former Morningstar analyst John Coumarianos highlights “investors’ self-defeating behavior” and suggests ways to correct it. He notes that Morningstar data shows a “negative ‘return gap’” of 1.8% over the past decade, and 1.6% over the past 15 years, “because of bad trading.” The return gap is the difference between […]

How Market Surprises can Impact your Thinking

Jason Zweig of the Wall Street Journal highlights the effects of surprises on investor psychology, drawing on neuroscience and historical events back to the 18th century. Robert Shiller of Yale says, “Metaphors and stories are important in investors’ thinking, and they can become a self-fulfilling prophecy,” noting that such stories are adjusted partly “by the […]