Anyone can quickly look up economic and market facts. 2+2 will always = 4. So, there's no advantage or edge to be gained by getting more information.
But as a crowd, people can be counted on to act contrary to their best interests. Not you, personally, just all those other people. They tend to be overly enthusiastic, aggressive, and willing to buy high when everything's rosy. And they get pessimistic, fearful, and willing to sell low when things are not. It's a feature of human nature.
Feelings, sentiment, and behavior are all linked. We closely watch three indicators of sentiment.
This is a monthly measure of consumer confidence. It was devised in the late 1940s and is continually updated. There’s 60 years of history here. A reading under 70 signals relatively less confidence. A reading over 100 signals more confidence.
For most of 2018-2019 the index was right around 100. Then the pandemic came to town. You can read our post on what happened here.
For most of 2018-2019 the index was right around 100. Then the pandemic came to town. You can read our post on what happened here.
The current reading is 78. That's neutral with a tilt to low confidence, and hence, a minor plus for long term investors.
Given the propensity to do the wrong thing (sell) when they are fearful, we get encouraged by readings under 30. Likewise, when greed is in play, we get quiet. Sound familiar? Warren Buffett.
Currently at 45, the Index is Neutral.
How We Use this Information
These indexes give us an idea of how people are feeling. Are they leaning to fear or greed? More importantly, it gives good clues about when to be more or less aggressive. This "Cycle of Market Emotions" tells us where we are in terms of risk and opportunity.
Be careful about applying any of this to individual issues or industry sectors.
This index of sentiment is gathered from economics-related news articles in 16 major U.S. newspapers. A reading below - .4 indicates pessimism. A reading above + .4 indicates optimism.
The current reading has risen out of the pessimistic zone to - .3. That's makes this indicator Neutral with a Positive tilt for long-term investors.
The current reading has risen out of the pessimistic zone to - .3. That's makes this indicator Neutral with a Positive tilt for long-term investors.
How We Use this Information
These indexes give us an idea of how people are feeling. Are they leaning to fear or greed? More importantly, it gives good clues about when to be more or less aggressive. This "Cycle of Market Emotions" tells us where we are in terms of risk and opportunity.
HT: ForexLive
Right now, the sentiment indicators seem to be portraying Hope and Relief. Hence, we are neutral to positively inclined, constructive, and encouraged. That doesn't mean fair winds and clear sailing. There will be setbacks, perhaps even shocking ones. But they should be met with enthusiasm. It's where you "buy low." Successful investing is highly counter-intuitive.
If you find yourself getting emotionally involved with your personal finances, feel free to reach out. That's why we're here. Email, the phone, and Zoom work just fine.
Jim Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315
Jim Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315
