I have a column coming out later today on sentiment and speculative excesses. Its an area that many investors have a hard time finessing through; There is a tendency to want to "be a contrarian." But be a usccessful contrarian means more than merely go against the crowd.
Why? It is the Crowd, after all, who takes markets higher. Hence the expression, "Don’t fight the Tape." That translates as go with crowd.
The value of the contrarian play is to indentify when the
crowd goes postal. Its only when they become over-stimulated, that the line between exuberance and
sheer madness fade away. Indeed, that
"thin green line" is all that separates Bull Markets from “irrational
exuberance.” Crossing that same line is how an otherwise normal aggregation of
sporting fans morphs into a full on mob of rampaging soccer hooligans. When the unthinking, instinctual part of the brain takes over – the ancient lizard
brain – speculative excesses often occur.
The trick is in identifying what data to use and what to discard. I have
long counseled against overweighting
anecdotal evidence versus actual data; It is too easy to simply filter
everything through your own rose or cloud covered glasses.
I ifnd that anecdotal
evidence has a very specific purpose: when it implies excess speculation, it should send you out hunting for specific quantitative sentiment data (which we detailed lots of specifics
With those caveats in place, consider these peculiar anecdotal examples of
sentiment run amuck: Prices of Jim Cramer’s Mad Money tchotckes on eBay.
The auction giant eBay has become legendary for all sorts of odd items being bought and sold. Recall the Vintage Stock Market Machine Predictor Computer we found last April.
Now, the trading of these items are not what’s at issue. What raises a red flag now are some of the eye opening prices that these otherwise modest giveaway items are fetching:
The Red and Black Bulls and Bears
Bidding: $160 (see here)
"STRAIGHT FROM THE CNBC STUDIOS, JIM CRAMER’S MAD MONEY SHOW OFFICIAL FOAM BULL. IN ONE OF HIS PASSIONATE MOMENTS, JIM CRAMER BIT OFF THE LEGS, HORNS, TAIL AND THREW THIS BULL INTO THE AUDIENCE AND I CAUGHT IT. THIS A MUST HAVE FOR ANY FAN OF WALL STREET OR JIM CRAMER."
Bidding $46 (see here)
Perhaps its not all irrational exuberance: Mad Money "Bling" — in the form of this 14K Gold MAD MONEY Charm Pendant — has precisely zero bidders.
Perhaps we haven’t reached the level of total madness . . .
Unreal Mad Money Trading After Hours!
Paul Hickey and Justin Walters
Birinyi Associates, January 27, 2006
Granville, Cramer and the Second Coming
Street Insight Contributor, 1/16/2006 8:47 AM EST