Is the AAII Sentiment Survey a Contrarian Indicator?

by Charles Rotblut, CFA

Each week, we ask AAII members a simple question: Do they feel the direction of the stock market over the next six months will be up (bullish), no change (neutral) or down (bearish)?

We refer to this question as the AAII Sentiment Survey. Since we started polling our members in 1987, our survey has provided insight into the moods of individual investors.

The survey has been become a widely followed measure. Its results are circulated by various organizations and media outlets, including Barron’s and Bloomberg. I have heard directly from, and indirectly of, many market strategists, investment newsletter writers and other financial professionals who follow the survey.

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Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at


Chicago AAII Sub Chapter Member from Illinois posted 10 months ago:

Am I the only one that is embarrassed to be associated with a group where our collective intelligence is being recognized as a "contrarian indicator" i.e. wrong?

If I was not a life-member and I all I knew about AAII was the Barron's or Bloomberg sentiment article, what would make me want to join a group of market underperformers?

Perhaps there is a better marketing tool for AAII?

Expat Member from New Jersey posted 10 months ago:

Kudos to AAII for taking a critical look at this issue. I disagree with the Chicago Chapter Member; it's not as though AAII members were alone in missing the 2009 bottom, for example -- a lot of reputable institutional investors were urging caution. GMO, for example, thought prices were attractive but predicted that downside momentum would continue to drag markets down further than it did. I've read a lot of articles where the AAII sentiment survey gets used as a contrarian indicator, and I never interpreted it as an indictment of AAII members themselves but rather assumed the survey was being taken as a representative of broad investor sentiment, ergo sentiment extremes imply that an awful lot of optimism/pessimism -- perhaps too much -- has been priced into current market prices.

Acting like you never make mistakes is not a good marketing tool. There are plenty of newsletters that tell you they could've given you 800% returns in six months. Is that good marketing?

Rick Schoenherr from Alabama posted 10 months ago:

This stuff is a little above my pay grade. I do sense that these numbers could be analyzed in a variety of ways, none of which is absolute. I didn't learn much here

Steve from Indiana posted 10 months ago:

Thanks for doing this study. As mentioned, the long term upward bias of the stock market distorts the performance whether contrarian or coincident. I think the survey might be more valuable now if there were a couple of time periods, maybe 6 weeks and also 6 months. Everyone is so short term oriented now.

I think many of the services that AAII provides has done a great job of educating investors over the years. For me as a lifetime member, AAII may have been my best investment.

It's not easy trying to outperform the market. Half of the hedge funds have underperformed over the last couple of years and no one talks about them being contrary indicators.

Carl from Florida posted 10 months ago:

This says that the easy money to be made is when the indicator goes -2 sigma bullish. 100% certainty of a quick 20% gain. Comeon crash! - I want to do this!

Marc from New Hampshire posted 10 months ago:

I take the Chicago member's point, without necessarily agreeing or disagreeing. Perhaps a take away may be that none of us is a trained bear, trained bull or trained neutral. Rather, we are a group, like it or not, sharing a certain level of commonality if only as far as desire for quality investment information/education. We all make our decisions independently, we do not invest as a group. We are all influenced by factors determined by our personal histories and environments.

Perhaps the reason groups like Bloomberg and Baron's find the survey worth the read is that we are representative of a group known to have skin in the game. A control sample if you will as opposed to a random shot in the dark based on the momentum talking heads are so fond of pontificating about. Measuring the sentiment of holders of securities necessarily produces different results than analysis of trade volume, direction and momentum especial these days with all the programmed trading.

Being considered contrarian is neither good nor bad. It is a description, an adjective. Personally, I've been called worse.

Edward from Utah posted 10 months ago:

The present public /private banking system in the US has increased the instability of our social milieu. This has increased the number and kind of market variables and making the future more uncertain.
As money becomes a commodity and not a medium for production and consumption cash flow is less reliable as an indicator of a healthy economy.

Bob Bubala from Indiana posted 9 months ago:

I am convinced the market moves at times when the Federal Reserve chairman or members past and present speak about policy. Recent moves. mostly down, have happened after and interview. Future moves discussed drastically move the market. It could be a move that is a year away but since it is going to happen will move the momentum either up or down. Volatility is prevalent during these periods.

Robert Smith from California posted 9 months ago:

I have always wondered about this question. I believe a better statistical tool would be to do a cross-correlation of the sentiment survey with stock market performance. Then you could measure whether the survey correlates (or negatively correlates) better with future perfomance or past performance. If I had to guess, I would guess the best correlation is with recent past performance, since sentiment probably correlates well with how the participants' portfolio has performed in recent memory.

Chris Johenning from Ohio posted 9 months ago:

Only 350 of 160,000+ members responding? Maybe you should look at ways to improve response rates and make it easier to reply? A direct email without log in requirements would increase my participation....Any other ideas

Tom Milne from South Dakota posted 9 months ago:

I agree with Robert Smith. I too would like to see the actual correlation results (ie. R squared values) between sentement and performance.
Also agree with Chris J. Need to improve response sample size

Daniel Ballisty from California posted 9 months ago:

I didn't see this in the article - the understanding is that when investors are overtly bullish they are at that time heavily invested, and perhaps do not have as much "dry powder" to add to the climb. Hence, it becomes a contrarian indicator. It is not an issue of intelligence, but an interpretive reading of probable reduced future money flows. The reverse would be true of a bearish indicator. It would tend to indicate a good chunk of change is out of the market and on the sidelines. Plenty of fuel to make a bull run!

The small sampling size surprised me, but it is a statistically usable size to derive sentiment with a reasonable margin of error. I've often interpreted that number as representative of all II's, not necessarily AAII members only; the source being AAII gave it creditibility.

Mark from Michigan posted 9 months ago:

All of this analysis was completed. The next step is to make it useful to us.
We see the numbers for %Bullish, % Neutral, & % Bearish, but based on your analysis of the historical data, what is the most likely market direction? Otherwise each member has to try to interpret the chart.
Providing the weekly investor sentiment as well as an AAII market predictor, based on the historical analysis, would be useful.

George Muzea from Nevada posted about 1 month ago:

For help with Contrarian behavior at market tops and bottoms, i suggest you read, The Vital Few VS. The Trivial Many.

Tim Mecke from Kansas posted about 1 month ago:

Could you translate this information to a chart as an indicator that could be overlayed on index and stock charts? If this already exists can you tell me where to find it?

Charles Rotblut from Illinois posted about 1 month ago:


A complete record of the data along with the S&P 500 index level can be downloaded from the Sentiment Survey page. The spreadsheet includes a chart.


Fred Gerbracht from California posted 9 days ago:

Do the same 350 members post their opinions/guesses?? It would interesting to see the response pattern.

Charles Rotblut from Illinois posted 9 days ago:

Hi Fred,

We send out a reminder to take the survey to a rotating group of members each week. While there may be some who take the survey every week, there are likely other respondents who change from week to week.


Richard from California posted 6 days ago:

Having read this article, I see that most references to the survey are broadly attributing significance that rarely is there in the data. As usual, the financial press is generating copy based on nothing to sell advertising or to provoke excess trading. Thanks for systematic look at this "indicator".

We should also look systematically at the abuse of the term "contrarian" in the financial press. As far as I know, it was originally used to indicate investing in value based on fundamental data. Value stocks have the best long-term appreciation potential and high flyers the worst because prices often have been driven too far by excesses of sentiment. Actual performance data has been used to prove this. Now I see articles advising being contrary to any "indicator" regardless of its demonstrated significance. Caveat investor.

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