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Has this bull run lost its legs?

by , 22 May 2014

Readers of the Stock of the Month newsletter have made a killing in the markets.

In just over three years, we've managed to generate 103.59% returns - Almost double that of the market's 63% return.

We achieved this by stripping out the emotion of the markets and focusing on the facts. Doing this has allowed us to ride the bull run to make huge profits.

The thing is, no bull market lasts forever. And when it's about to end, there's one warning light you need to look at...

Why this warning light works so well
 
When it comes to investing in the markets… Emotions drive everything. 
 
If people fear a company’s results will plummet, its share price will drop before the results are even released. 
 
The point is this: Most investors believe themselves to be rational and calculating when in fact the opposite is true. Emotions and misinformation rule the markets.
 
Because of this, when there is extreme optimism and everyone is buying… It’s usually the best time to sell. A big drop is likely around the corner.
 
That’s what it means to be “contrarian.” A strategy used by many investors including world renowned investor David Dreman.
 
Becoming a contrarian can help you avoid the next crisis
 
The American Association of Individual Investors (AAII) – a non-profit group focused on educating people on investing issues – publishes a weekly Sentiment Survey. 
 
This essentially gives a barometer reading of what percentage of individual investors consider themselves bullish, bearish, or neutral. 
 
The thing is, sentiment is normally a contrarian indicator. When everyone is convinced that the market will continue rising and the bullish indicator hits an extreme high… That’s when you’ll probably get burned. 
 
But right now, we're not at an extreme… Around 33% of investors think the US market is headed higher. That may sound high – But it’s not. It’s still 6% below the indicator’s long-term average.
 
History shows us another reason why it’s relatively low. Just before the dot-com bubble bursting, 60% of investors were bullish. And before the more recent 2008 crisis? Over 50% of investors were bullish. These are the levels that signal a burn.
 
The opposite also holds. In 2002 the bullish reading was at rock-bottom in almost 13 years… Yet the markets boomed over the next five years.
 
Thrive in your possibilities,
 
Jonathan Bachrach
 


Has this bull run lost its legs?
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