The Herding Mentality In The Markets
There is a great article by ETFGuide regarding the herding mentality of investors, and how investors are usually wrong. They details some examples of recent market tops and bottoms, and they beg the question regarding whether or not we are topping out right now.
A few key examples:
- October 2002 – Dow: 7,500; S&P: 800 – 24.5% of investors were bullish; 54.8% were bearish – Stocks put in a bottom at this level
- October 16, 2007 – 54.6% of investors were bullish; 16.5% of investors were bearish – The market peaked here.
- March, 2009 – 18.9% of investors were bullish; more than 70% of investors were bullish – The market has rallied over 50% since the March lows.
- August, 2009 – Over 51% of investors were bullish – what will the market do? So far, it’s gone up more.
Also, one of my favorite sites, Fund My Mutual Fund, had a great post about the potential top in the near term channel of the S&P. Check it out.
It all adds up to interesting times. The most important thing is to file away these experiences to make money off them in the years ahead!
Update… check out this great read about upper income earners living paycheck to paycheck (another factor in our consumption debacle).