If you are not familiar with the survey it has been widely adopted by the investment community as a contrarian indicator and is followed closely by the financial media. Since its inception in 1963, our indicator has a consistent record for predicting the major market turning points.
Surveying a broad assembly of respected views
We study over a hundred independent market newsletters and assess each author’s current stance on the market: bullish, bearish or correction. Since we have had just four editors since inception, there has been a consistent approach to determining each advisors stance and his prior viewpoint.
Four decades of data to set our precedent
Our weekly sentiment data runs consistently back to the 1960’s. Current readings are put into context against historic precedents.
When the survey was developed by our founder, AW Cohen, he originally expected that the best time to be long the market was when most advisors were bullish. This proved to be far from the case – a majority of advisors and commentators were almost always wrong at market turning points. Quite simply, professional advisors are just as susceptible to market emotions as individual investors – they become far too greedy at the top of trends and far too fearful near the bottom.
A contrary indicator…but only at extremes
We don’t necessarily take a contrarian view to the newsletter writers in our survey. A large part of the time our sentiment readings remain neutral. We consider the norm to be 45% bulls, 35% bears and 20% neutral. However, we do pay attention to extreme readings in both bulls and bears and also to historically significant runs of more bulls than bears. To summarize, advisors are only wrong when you get too many of them start thinking the same thing.
Example, back in October 2002, there were many more bearish than bullish advisors – historically this has always been a good time to start thinking about buying the market.