One part of my investment philosophy is to gauge investor sentiment. Specifically, I like to use it from a contrarian point of view. In other words, I don’t want to be bullish when everyone else is and vice versa. One problem that occurs frequently is there are so many different sentiment surveys that they often conflict.
So what do I do? I talk to people. This includes traders, other money managers, potential investors, friends, family, etc. Right now, 90% of these people are bearish, short, hate the market or, at best, cautiously optimistic. The only people who are bullish are the “buy and hold” people, but they don’t count because they never sell. They simply ride things all the way up, and then ride them all the way down. I actually consider them more “hopeful” than bullish.
Seven of the last eight prospective clients I have spoken to are scared. They tell me “there is no way I am investing at these levels,” and the most common phrase I hear from them is “a crash is coming.” I try to explain to them that this might be the beginning of a new bull market and they laugh at me. They also don’t understand that if I’m wrong, I will use stops and protect capital.
If you don’t believe me, try this exercise over the next week: Randomly ask 10 people what they think of the stock market and see the response. You might quickly be reminded of the famous quote by Sir John Templeton: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”
I can be reached at: jfahmy@zorcapital.com