Investor Sentiment Indicators: Quite Contrary?

by Mark Hulbert

Every ideology runs the risk of becoming the refuge for scoundrels, and contrarian analysis is no exception. It is the rare adviser today who doesn’t claim to be a contrarian, regardless of whether he is bullish or bearish.

It would appear that, at least in many advisers’ hands, contrarian analysis has become little more than an excuse for sloppy thinking. And it would be easy therefore to conclude that we should ignore the approach altogether. But just as we don’t throw out an ideology because it has been used disingenuously, we shouldn’t be too quick to dismiss contrarian analysis.

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For this article I studied the relationship between the stock market and several different measures of investor sentiment. The results show that there is something genuinely worthwhile in contrarian analysis.

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