If you’re like most investors, you’re probably feeling a little down on the market these days. Well, maybe more than a little down. It turns out that market sentiment, how investors feel about the market, is at record lows.
Every week research firm AAII surveys a collection of professional and individual investors, asking how they feel about the market. They keep the results of that market sentiment survey here.
For fun I decided to chart market sentiment along with the US stock market. You’ll notice, like I did, an interesting pattern emerges.
Market research firm CXO did their own more rigorous study on market sentiment posted just last week. Like the chart above, their research is constructive on pessimism. It indicates that after extreme cases of market pessimism, the US stock market earns about 15% on average over the next six months. According to their research, our present level of pessimism would be considered in the extreme zone.
But a cautionary note: Although sentiment data does have some “predictive” ability, I don’t recommend using this information as a market timing tool. There is no perfect track record, only levels of confidence.
I think it’s more useful to consider sentiment in line with some sage advice from none other than Warren Buffett: Be fearful when others are greedy, and greedy when others are fearful.
Ben Kizemchuk is a Portfolio Manager & Investment Advisor with Altus Securities Inc. in Toronto. He offers financial planning and investment management for high net worth Canadian investors. Ben focuses on high quality investments, the Growth and Income Portfolios, low risk investing, and reducing tax.