The American Association of Individual Investors (AAII) Investor Sentiment Survey for the week ending January 12 showed that 52.3% of investors are bullish. Only 23.4%are bearish. The rest are neutral.
Remember in October 2007, bullishness hit 62%, just as the S&P 500 was peaking at its all-time high.
But... the reason that this indicator isn’t all it’s cracked up to be is that historically, investor sentiment is right most of the time, not wrong. What the bears fail to understand is that average investors are trend followers. And trends tend to last a long time. They’re right the majority of the time, but wrong at both extremes. They get caught buying at the top and selling at the bottom. That’s why this indicator is of some value when it hits extraordinary levels.
But we’re not there yet…
(Adapted from Alexandra Green, Investment U)
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