Bear in mind – The Reformed Broker

OK, don’t press for that, but you might reconsider pressing the button if you haven’t already…

The AAII sentiment poll hit 60% bones this week. History says that the more pessimistic the investor class becomes, the better they look at potential returns six months out.

The way I think about it is that the only thing that could make investors really bearish is a big selloff in the market. You will never see extremes on the downside after a big rally. So as stocks fall, their likelihood of potential returns increases. Bear-Bull’s is just a sideshow that accompanies this action, and as such can be seen as a contrarian indicator. well But remember, it’s really about the prices themselves being better, not how upset everyone is about the lower prices.

Chart of the day:

Two fun facts, according to CotD:

The highest percentage of AAII bearish sentiment was 70% and occurred on March 5, 2009 near the end of the financial crisis bear market.

The lowest percentage of AAII bears was 6% on August 21, 1987, shortly before the October 1987 stock market crash.

It’s almost as if recent past market activity has the ability to completely change the mood of investors! It’s like people become more optimistic after making a lot of money and then become discouraged when they give up some of those gains! Extraordinary! Who knew?

Stocks are now cashing in on endless interest rate hikes as far as the eye can see, inflation that just won’t go down, a collapse in capital markets due to more expensive money, a wave of defaults, and an epidemic of cuts in earnings, layoffs, etc. crashing house prices and energy shortages with a secondary order of nuclear war. Maybe they’ll be right. If so, your stock returns won’t be particularly important as we’ll all be crouching in an alley with a raccoon carcass pressed to our lips, snarling at each other in the dark as the gray ash atomic power is cascading from the sky, resting on our shoulders as the twilight of humanity begins.

I would bet the other way. Things will go wrong, but rarely as bad as the worst of our imaginations can conjure up. And in the turn, the best and brightest among us will emerge even stronger than we were before the crisis. Because? Because we will have kept a cool head and made good decisions, not emotional ones. Not everyone will emerge unscathed, let alone in an even better position. I wish that wasn’t the case, but we have to focus on the things we can control.


Chart of the day

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