Helping Investors Overcome Fear in Markets
Data Source: AAII
Recently both retail and institutional investor’s market sentiment have been turning more bearish and neutral as markets have come off their all-time highs. According to a recent CNBC.com piece, a record 84% of fund managers think the U.S. market is the most overvalued.
Individuals have also turned more bearish. The AAII or American Association of Individual Investors regularly polls members about their belief of the likely market direction over the next 6 months. While nowhere near extreme levels, as seen in the graph above, most are neutral at best. Currently only 29.6% of respondents said they have a bullish six-month forward outlook while 29.9% are bearish. This means 70.4% are either bearish or neutral.
What’s interesting is that when you look at the historical averages according to AAII’s site, on average more than 61.5% of respondents make up bearish or neutral sentiment for the next 6 months.
Data Source: AAII
Now many might say that investors have much longer time horizons than six months. That their near-term sentiment on the markets may not drive investment decisions. Yet we know that unfortunately many try to time the market to enter once there has been a selloff. Often the selloff they wanted never happens – only to see markets go on a run where they miss out on potential returns. On the flip side, when bullish buying spikes, we might see investors displaying FOMO (Fear of Missing Out) where they put money into markets to not miss the further upside.
We know that 2008 still isn’t far enough in the rear-view mirror to not weigh on some folk’s decisions much the way 1987 still touches some nerves. But we do know that markets are incredibly difficult to try and time. So, we would assume that some fear exists about getting invested into markets always.
Always look to be invested in an allocation that has some defensive measures – while also having some growth exposure also. This way, you don’t need to think about timing the market. You can always have a disciplined approach.