Tags: bull | bear | sentiment | survey

Investors Need to Ignore Sentiment Surveys

By    |   Friday, 14 Nov 2014 08:47 AM

Now that stocks have been moving higher for a few weeks, bears are pointing to sentiment as a reason to be bearish. Sentiment surveys are published by several organizations and they are simply poll results. The organizations ask investors whether they are bullish or bearish. In recent surveys, a majority of investors have turned bullish.

Bears argue that when a majority of investors are bullish, stocks are due for a fall. Their logic is that everyone can't be right in the market so if a large number of investors share an opinion, the majority has to be wrong. There are a number of problems with the polls and with this logic.

One problem with these polls is that they represent a small number of investors. A poll of individual investors might include just 100 responses.

Another problem is that the polls are not random. Anyone who wants to answer the question can submit a response in one of the most widely publicized polls. Nonrandom polls are considered worthless by election forecasters and investors should also ignore these polls.

Finally, the majority of investors will be right most of the time. Stocks go up when bulls are buying and they fall when bears are selling. It takes a majority of investors being on one side of the market to create a trend. That is the markets really work — when bulls are more enthusiastic than bears are, prices rise.

A large number of bulls in a poll and in the market would be bullish when you think about how markets really work.

Since we buy and sell based on price and not poll numbers, sentiment surveys are one indicator that can safely be ignored.

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MichaelCarr
Now that stocks have been moving higher for a few weeks, bears are pointing to sentiment as a reason to be bearish. Sentiment surveys are published by several organizations and they are simply poll results. The organizations ask investors whether they are bullish or bearish.
bull, bear, sentiment, survey
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2014-47-14
Friday, 14 Nov 2014 08:47 AM
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