10 Updates

Investor Expectations Also Need Tapering As We Enter 2014

Dec 28 2013, 12:08am CST | by

Psychologists say much of the reason investors have such a dismal record of buying high and selling low, of being excited and buying enthusiastically at market tops and then bailing out in disgust...

Filed under: news

 
 
 

29 weeks ago

Investor Expectations Also Need Tapering As We Enter 2014

Dec 28 2013, 12:08am CST | by

Psychologists say much of the reason investors have such a dismal record of buying high and selling low, of being excited and buying enthusiastically at market tops and then bailing out in disgust at market bottoms, can be explained by the ‘recency bias’ of the human brain.

That is we expect whatever happened most recently to continue, even though facts tell us it is unlikely. When a severe hurricane strikes in an area where such catastrophes are rare, even though experts describe it as a once in a hundred year event, we strengthen our preparedness on expectation of more such storms the next year. When those health warnings we had a month ago recede we forget about seeing a doctor since more recent experience is not alarming. When the stock market has been going up for several years, that recency has us forget the longer-term memory of severe declines.

Warren Buffett explained recency bias in investing in his warning in 1999 that the market was near a serious top saying, “Investors project out into the future what they have most recently been seeing. That is their unshakable habit, looking in the rear-view mirror instead of through the windshield.”

In 1999, they were looking back at the powerful bull market of the late 1990’s and projecting it to continue endlessly into the future. Instead, the severe 2000-2002 bear market took place, which those like Buffett who were looking through the windshield saw coming. After the bear market ended, it was still the scene in the rear view mirror for quite some time. And with fear having replaced greed, investors then extended its trend endlessly into the future even though the 2002-2007 bull market was underway.

Currently, seeing the wonderfully one-directional market of 2013 in the rear view mirror, and the five-year bull market beyond that, investors are obviously extending those trends in a straight line into the future.

Investor sentiment as measured by the Investors Intelligence poll of newsletter writers is at 59.6% bullish and 14.3% bearish. That spread between bulls and bears is an extreme ratio often seen near serious market tops.

This week’s poll of its members by the American Association of Individual Investors (AAII) shows investors are 55.1% bullish, only 18.5% bearish, and have 64% of their portfolios in stocks, just below the 69% stock allocation reached near the 2007 market peak.

The respected Ned Davis Research Crowd Sentiment Poll, a proprietary composite of numerous sentiment surveys, recently broke out above 70. That rivals some of its extreme readings of the past, and has Ned Davis Research Inc. expecting a 20% market decline sometime in the next 12 months.

Investors need to keep recency bias in mind as we enter 2014, since what is showing up through the windshield may be at odds now with the scene in the rear view mirror.

For instance, for the past five years the Federal Reserve has continuously increased its monetary QE stimulus. Beginning next month it will reverse the process to continuously decrease its stimulus.

For five years Washington has increased its fiscal stimulus, running the national debt into record territory in order to provide more spending, more support for the unemployed, more incentives for businesses to expand.

Washington is now also reversing that process. An estimated 1.3 million Americans will lose unemployment benefits Saturday when that emergency relief program expires. At the same time, the accelerated depreciation program that has allowed businesses to depreciate 50% to 100% of the cost of equipment purchases in the year of purchase rather than over 20 years, will expire.

Meanwhile, the additional market spike of the last year has stocks much closer to, if not already at, over-valuation levels. The average lifespan of the 11 bull markets since 1950 was 53 months. The current bull market is now 57 months old.

None of these observations, differing markedly through the windshield from what is seen in the rear view mirror, constitute sell signals. Nor can they predict when a market might top out.

But they do indicate the changed risk as we enter 2014, and how the ‘recency bias’ that has investors so enthralled now may become a problem.

Sy is president of StreetSmartReport.com and editor of the free market blog Street Smart Post . Follow him on twitter @streetsmartpost. He was the Timer Digest #1 Gold Timer for 2012 (Gold Timer of the Year), as well as the #2 Long-Term Stock Market Timer.

Source: Forbes Business

 
Update
10

6 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

Cambodia's Famous Battambang Circus
KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat was to ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

6 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

Melbourne Rising Media Launch
KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was bro ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

6 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

Federal Aviation Administration Bans All US Flights To Israel
KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

6 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

6 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

INDIA-CHINA-DIPLOMACY-TRADE
PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern states last mont ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

Government Weekly Cabinet Meeting
KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2. ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

Iskandar Johor Open - Previews
JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involvin ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

EurAsia Cup presented by DRB-HICOM - Day One
PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Sche ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Dam ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

DG: No survivor in Algerian plane crash, probe launched (Roundup)
Algiers/Paris, July 25 (IANS) Algeria Friday declared a three-day national morning for the victims of the Air Algerie flight AH 5017 that crashed over Mali the previous day with no survivor yet found from the plane wreckage, media reports said.
 
 
Earth missed solar catastrophe just a year back: NASA
Washington, July 25 (IANS) Just a year ago, on July 23, the Earth missed being hit by a giant solar flare from the most powerful storm on the sun in over 150 years, NASA has said in a sensational revelation.
 
 
McDonald's Japan withdraws chicken products of Chinese origin
Tokyo, July 25 (IANS/EFE) The Japanese subsidiary of McDonald's Friday announced the withdrawal of all its chicken products sourced from China, following the expired meat scandal that led to the closure of Chinese meat processing firm Husi.
 
 
Common pesticide puts three generations at health risk
Washington, July 25 (IANS) If your ancestors were exposed to a common pesticide - widely used the world over during the 1970s as a safer replacement for DDT and still in use in many countries - this may lead to adult onset of kidney disease, ovarian disease and obesity in future generations.
 
 
 

Latest from the Network

4 more awesome paid iPhone apps that are free right now
Before the sun sets on another week, we have one last batch of paid iPhone and iPad apps to share with you that are currently on sale for free for a limited time. This has been a terrific week for thrifty app shoppers...
Read more on Apple Balla
 
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
It’s January 2026. New York Yankees owner Hal Steinbrenner gets out of his driverless car and triumphantly marches before the gathered press to introduce his prized new free agent. It’s a record-breaking contract—over...
Read more on Auto Balla
 
Surprisingly iPad's Drop In Sales Is Not Samsung's Gain, Welcome To Tablet Transformation
Over the past three years we’ve become accustomed to Apple and Samsung slugging it out at the top of the phone and tablet markets. This week’s news that Apple suffered a slump in iPad sales would normally be accompanied...
Read more on Apple Balla
 
iPhone 6 Sapphire Display: Everything You Need To Know
The iPhone 6 will be the most radical redesign in iPhone history. Central to that will be the move to larger 4.7-inch and 5.5-inch displays and central to convincing us this is a good idea will be Apple’s use of...
Read more on Apple Balla
 
By The Numbers: How Apple's Product Cycles Affect Warranty Charges
Apple’s warranty accruals have a large impact on the company’s gross margin and profitability. From fiscal 2010 to fiscal 2012 Apple’s warranty accruals were very steady ranging between 1.4% to 1.5% of revenue. This...
Read more on Apple Balla
 
Indians among asylum seekers to be identified
Sydney, July 25 (IANS/EFE) Australian authorities Friday said they will transfer to the mainland 157 asylum seekers detained offshore in an Australian customs ship so that at least the Indians among them can be...
Read more on Politics Balla
 
WHO calls for humanitarian corridor in Gaza
Geneva, July 25 (IANS/EFE) The World Health Organization (WHO) Friday called for safe passage in the Gaza Strip to evacuate the injured in the 18-day Israeli offensive which has left more than 800 Palestinians, mostly...
Read more on Politics Balla
 
CWG: Indian lifter Santoshi wins bronze
Glasgow, July 25 (IANS) Indian weightlifter Santoshi Matsa won the bronze medal in the women's 53kg at the 2014 Commonwealth Games at the Clyde Auditorium here Friday. The gold went to Nigeria's 16-year-old Chika...
Read more on Sport Balla
 
Iranians mark Quds Day in solidarity with Palestinians
Tehran, July 25 (IANS) Hundreds of thousands of Iranians rallied Friday across the country to mark Quds (Jerusalem) Day in solidarity with the Palestinians, condemning Israel's continued occupation of Palestinian land...
Read more on Politics Balla
 
CWG: Bindra ends his Commonwealth Games journey with gold
Glasgow, July 25 (IANS) India's golden boy Abhinav Bindra finished off his Commonwealth Games journey with his maiden singles gold medal while his compatriot Ravi Kumar unfortunately missed out on a bronze medal in a...
Read more on Sport Balla