There’s a Big Difference Between What People Say and What They Do.

I received a great email last week about sentiment. The question was: “What do you do when two different sentiment measures conflict?” For example, the NAAIM survey (a measure of active manager investment levels) has been declining lately, but Investors Intelligence (a measure of newsletter sentiment) shows an increasing number of bulls. See charts below.

My first answer is the price action of leading growth stocks overrides ALL sentiment measures. In other words, that is 90% of what I use to measure the overall health of the market and sentiment is a secondary measure. Especially because there are about 10 different sentiment readings and many of them conflict at times.

The direct answer to this question is there’s a big difference between what people say and what they do. For example, NAAIM is asking active money managers what they are actually doing with client assets. Investors Intelligence is asking newsletters writers what they are telling clients, but doesn’t tell you what they are really doing with their own money.

To prove my point, a good friend of mine is a newsletter writer and part of the Investors Intelligence survey. He is telling clients to remain bullish because he privately tells me “you look like an idiot being bearish in this market.” However, with his own money, he tells me he is terrified of this market and currently keeps an 80% cash position. Now I realize this is only one example, but it wouldn’t surprise me if this is the case with many survey participants. Again, the main point I want to stress is follow the market’s price action because the big institutions control the market and they give us regular clues as to what they are actually doing.

I can be reached at: jfahmy@zorcapital.com.

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