Warren's Wisdoms - Comments from Warren 4/12/2005
Unfortunately, the science of investing remains very much an art. At WWA, we know that the future is unknowable, but we do track a dozen or so indicators that we believe may give us a glimpse into the direction the markets may be heading.
Over the years, it seems that the stock market has always been required to �climb a wall of worry� as it moves to higher ground. Briefly, when investors are pessimistic about the market (we say they are bearish), they tend to keep money on the sidelines which is then available for later investment. On the other hand, when they are optimistic (bullish) they tend to be fully invested, leaving little new money available to help push markets higher.
The American Association of Individual Investors has been polling their members since 1987. The problem with such polls is that they don�t tell us what investors will do, but what they�re thinking about doing and we would never make an investment decision based on such data. We do take the results into account, though. We track the difference between bullish & bearish investor sentiment, average the results over a three week period, then chart the data giving us a bearish/bullish percentage. As of last Friday, the index (172%) is the second highest since 1998 and confirms our decision to remain essentially fully invested. Similarly high signals in August of 1998, July & October of 2002 and Feb of 2003 proved to have been right about the direction of the market over the next year or so.
We know it sounds very counter-intuitive to invest when people are pessimistic and sell when they are not, but as an indicator � never a decision maker � this has proved a successful strategy for us in the past.
|
|
INDEX |
�2006 Warren Ward Associates. All rights reserved. |
