Bullishness Remains Missing, Which Is A Good Thing

Despite media headlines, podcasts, and broadcasts suggesting “doom and gloom” lurks around the corner, investor bullishness has increased markedly since the October lows. This isn’t the first time we have discussed investor sentiment, which is often wrong at the extremes.

One of the hardest things to do is go “against” the prevailing bias regarding investing. Such is known as contrarian investing. One of the most famous contrarian investors is Howard Marks, who once stated:

Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, particularly when momentum invariably makes pro-cyclical actions look correct for a while.

Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian.‘” – Sentiment Is So Bearish It’s Bullish

That bolded sentence is the most relevant to today’s discussion.

Extreme sentiment readings, either bullish or bearish, typically denote the point where investors make the most mistakes. Such is because the emotions of “fear” or “greed” are driving investment decisions. From a contrarian investing view, we should be “buyers” when everyone is selling or “sellers” when everyone is buying.