Is the Contrarian Bell Clanging for Stocks?
At some point, investors will stop looking at the bright side.
Let's start with the caveat: There is no proof that investors can profit by considering market sentiment.
Betting against current sentiment makes intuitive sense. If equity investors are happier than usual, the process of reversion to the mean suggests that their mood is likelier to worsen than to brighten, causing stocks to suffer accordingly. Conversely, if shareholders are gloomy, the odds favor improvement. Eighty years ago, John Maynard Keynes discussed how "mob psychology" affected stock prices. Surely, it still does.