Investor sentiment

In selecting investment opportunities are numerous aspects that should be considered before executing them , such as: the period of investment, the level of risk to take, the goal to achieve, portfolio diversification and strategies …

to do this, who operate in markets, they have tools and indicators disciplines of technical and fundamental analysis available to them, although some are based on the last recommendation you have heard some guru.

Whatever the method used by an investor, analysis and final decision will be influenced decisively by its investor sentiment . This often reflects their expectations and perceptions of market developments, and will play a key role in the operation that make finding counterpart someone with an opposing view.

Such is the importance that some associations give the feeling among investors that the AAII (American Association of indivual Investors) makes a weekly survey among its members to know the status.

The following graph shows the results thereof and the evolution of the AAII investor sentiment since the end of April this year.

It is noteworthy that the bulls are in maximum and minimum bearish throughout the period, while neutral opinion have been oscillating in a band from 20 to 30%. But it is still amazing how in the past month has gone from one extreme to another, almost bearish to bullish maximum highs, no doubt reflecting the great prevailing uncertainty in the markets where the mood changes to a stratospheric speed .

In a recent survey , whose results are reported in the article “The Investor Sentiment Cycle” , conducted among a group of 100 professional investors to know what stage the investor sentiment cycle ( see chart below) Are reflected, the answer with the most votes was the phase of Hope with 26% , followed closely by the depression phase with 21% , the interpretation would be:

  • The phase of Hope reflects that the worst has passed, it has started a process of recovery and the light at the end of the tunnel.
  • The depression phase reflects perceived an improvement but not have enough confidence in the recovery and not a possible relapse is discarded.

The results of these surveys show the real battle and uncertainty that has long live markets between bulls and bears, and that only time will resolve.