| ETF Profit Strategy |
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| Bad news! Why Investors Are Usually Wrong |
Investors are complicated creatures, yet their actions can often be easily explained.
Here’s why prices kept going up throughout September and October even though the economic news (aside from a few positive earnings announcements) has actually been disappointing:
Take a moment to examine why you did or did not buy stocks recently. If you did, was your decision influenced by your co-workers, friends, associates, the media’s, the government’s and the general public’s expectation of an economic recovery?
If so, your decision was, at least partially, based on peer pressure. Ask yourself if this wasn’t the same type of peer pressure that might have moved you to buy into the dot.com bubble in 1999, the real estate boom in the early 2000s, the financial bubble in 2007? If you sold your stocks in February or March of 2009, was it because you listened to the doomsday atmosphere around you?
Peer pressure – also called the herding mentality – is the worst investment guide in town. In fact, it’s so bad (and so accurate) that savvy investors use it as a contrarian indicator. In other words, they sell when the masses are buying and buy when the masses are selling.
There are several ways to measure investor sentiment. Elevated levels of bullish optimism readings are as good an indication of an impending market top as any. The September and October issue of the ETF Profit Strategy Newsletter contain a detailed analysis of investor sentiment and what it means for stocks.
Remember, optimism or complacency mean danger for stocks. If you see your friends, co-workers, relatives and others buying stocks with confidence, you need to read report on “Herding – Why Investors Are Usually Wrong” featured in the October issue of the ETF Profit Strategy Newsletter.
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