AAII: The American Association of Individual Investors

Is the AAII Sentiment Survey a Contrarian Indicator?

by Charles Rotblut, CFA

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


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.

Can the results signal future market direction? In an update to my colleague Wayne Thorp’s 2004 article, “Investor Sentiment as a Contrarian Indicator” (Computerized Investing, September 2004), I look at the data and give perspective. The key to remember when reviewing the data is that a variety of indicators and criteria should be considered before making a tactical change in asset allocation.

Background of the AAII Sentiment Survey

The AAII Sentiment Survey is conducted each week from Thursday 12:01 a.m. until Wednesday at 11:59 p.m. AAII members participate by visiting the Sentiment Survey page (www.aaii.com/sentimentsurvey) on AAII.com and voting. The survey is open to all members, though a weekly email is sent to a rotating group of members reminding them to participate. Results of the survey are automatically tabulated by our database and published online early each Thursday morning. Prior to the year 2000, members responded by physically mailing a postcard back to the AAII offices. Response rates vary, though we would consider fewer than 100 votes to be low and more than 350 votes to be high. We do not track long-term response rates, though during the first four months of 2013, an average of 315 members took the survey each week.

The typical AAII member is a male in his mid-60s with a bachelor’s or graduate degree. AAII members tend to be affluent with a median portfolio size in excess of $1 million. The typical member describes himself as having a moderate level of investment knowledge and engaging primarily in fundamental analysis. This said, AAII has in excess of 160,000 members and simply due to the sheer size of our membership, there are wide variances in wealth, investment knowledge and investing styles. We also have many women members. This mix makes the AAII Sentiment Survey unique in that it conveys the attitudes of active, hands-on individual investors.

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