JACKSONVILLE — Over the years, I’ve written about the dangers of following the majority in your investing. History shows that the majority, also called the crowd, is usually wrong. When everyone is too bullish, that has historically been a bad signal for stocks. On the other hand, when everyone is too bearish, history shows that is typically a good time to buy stocks. Seems odd, but history bears this out.  

The crowd may also include some fairly well known investors and stock market commentators. In today’s investing environment, there is no shortage of opinions out there. Investors are bombarded every day by the financial media and various market experts with their opinion about “here is what will happen next.”

Are these experts usually right? Should you pay attention to them? Let’s look at what some of these experts were saying before the last two meltdowns in 2000 and 2008. These quotes are taken directly from Fortune, Business Week, Kiplinger’s, or USA Today. Here’s a few from the bear market of 2000-2002:  

Larry Kudlow, CNBC, “This correction will run its course until the middle of the year. Then things will pick up again, because not even Greenspan can stop the Internet economy. (June 2000)

CNBC’s Maria Bartiromo, “The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions.” (March 2001)

Abby Joseph Cohen, Goldman Sachs, “The time to be nervous was a year ago. The S&P then was overvalued, it’s now undervalued.” (April 2001)

Lou Dobbs, CNN, “Let me make it very clear. I’m a bull, on the market, on the economy. And let me repeat, I am a bull.” (August 2001)

Obviously, these experts were quite wrong. Now let’s look at a few expert opinions made right before the last bear market in 2008:

Ken Fisher, who manages 36 billion dollars for investors: “This year will end in the plus column ... so keep buying.” (March 2008)

Treasury Secretary Hank Paulson told Fortune magazine, “This is far and away the strongest global economy I’ve seen in my business lifetime.” (June 2008)

Barron’s, “Home prices are about to bottom.”  (July 2008)

“Mad Money” Jim Cramer on CNBC, “Bye-bye bear market, say hello to the bull.”  (July 2008)

Abby Joseph Cohen, Goldman Sachs, “The fear priced into stocks is likely to abate as recession fears fade.” (July 2008)

All of these experts were dead wrong as a major bear market was just beginning when they made their comment. I could go back to other historical market tops and show similar quotes. But my point here is not to pick on anyone for making a bad stock market call. Hey, I’ve had my own share. Who hasn’t? Rather, it’s to point out how the crowd -- including experts – can sometimes be very wrong. The takeaway here is to pay attention when there are too many headline quotes that are either too bullish or too bearish.

Today, we really don’t have an overwhelmingly bullish or bearish crowd. This may explain why the S&P 500 Index has been stuck in a trading range between 1,250 and 1,350 in the first half of 2011.



Securities offered through Royal Alliance Associates, Inc. Member NASD, SIPC. Advisory services offered through Matt Montgomery, a Registered Investment Advisor, 1504 East Rusk, Jacksonville, Texas, 903-586-3494.