Sentiment indicators from the AAII (individual investors) and Investors Intelligence (newsletter writers) indicate that stock market sentiment is at historically high levels, and has been for a while. However, whenever I discuss stock markets with people – ranging from private investors to institutions to journalists – most of them seem to be more concerned about a looming correction in the near term than being bullish. Maybe it is just a question of communicating with different people from those participating in the surveys, but anecdotally I do not observe particularly bullish sentiment.
In order to cast light on this issue, I proceeded to run my own survey to try to get a feel for how the readers of Investment Postcards and The Big Picture (Barry Ritholtz’s blog) see matters. 4,004 people participated in the poll, resulting in the numbers in the table below.
The comparative numbers show the following:
- The Investment Postcards Survey had fewer bulls and significantly more bears than the AAII and Investors Intelligence Surveys. The number of neutral votes were much the same.
- The Investment Postcards Survey actually had more bears than bulls, resulting in a bull-bear spread completely opposite from that of the other surveys.
Source: AAII; Investors Intelligence; Investment Postcards.
The results of the Investment Postcards Survey support my anecdotal observation that most people I talk to seem to be fearing a correction/pullback rather than be bullish. I have absolutely no idea why the results of my survey are so different from the others as all the surveys polled people with some interest in the stock markets and mostly from the U.S. The questions were also the same and the six-month investment horizon the same as that of the AAII. (I do not know the time period used by Investors Intelligence.)
The number of participants in the AAII and Investors Intelligence Surveys were not disclosed, but I assume they are representative samples. Although 4,004 participants are not a particularly large number, I am of the opinion that it is large enough to show a pattern. The Investment Postcards Survey closed four days (including two trading days) after the others, but this should have increased the bulls/reduced the bears as market sentiment was quite upbeat over those days.
What now? I am tempted to run my survey on a continuous basis for the simple reason that the results seem to support my intuitive feel to a much greater extent than that of the AAII and Investors Intelligence Surveys. But this is where I need your help on the interpretation of the results. Am I missing something somewhere? Where is the flaw in the logic? Is sentiment in reality not as overbullish as the other surveys show? Please post your remarks in the comments section of the post so that we can get the debate going.