Stock Market Prediction: Avoiding the Herd Mentality

Stock Market Predictions: Experts Often Fall Short

Aug 31, 2023

To illustrate the fallacy of stock market predictions, we will employ a historical backdrop by delving into the year 2019. The rationale behind utilizing historical data is twofold: firstly, it provides tangible data for scrutiny, and secondly, it offers valuable insights to prepare for the recurrence of similar events. This is the method through which astute investors amass billions of dollars annually.

The primary advice we would offer to novice investors is to avoid following the crowd, as they often find themselves on the wrong side of the fence. This counsel holds true not only for 2019 but also for all the years preceding and following it.

Investors are currently sitting on a substantial cash reserve, which continues to grow each day. The majority panicked when the so-called Santa Claus rally failed to materialize. However, they overlooked that Santa had essentially provided savvy investors with a splendid shopping list, and all the items were available at discounted prices. This January effect turned out to be one of the most robust in history, more than compensating for the absence of the Santa Claus rally. Therefore, if there is still an opportunity, it is advisable to consider entering the market and making purchases. Mass Psychology clearly states that the best time to buy is when the masses ignore an investment or the stock market is crashing.

Stock Market Predictions: Anticipating the Unforeseen

The term “forever QE” has only recently begun to gain traction, and probably, the mainstream media will soon adopt and potentially exploit this term in the near future. However, it’s worth noting that we initially discussed this phenomenon back in 2015. Here is the link that provides a detailed account of what was said at that time: Forever QE

The outlook has only worsened since then; the new tax breaks corporations got will be used to purchase more shares, and the reason is simple: it pays more in the short term to boost profits by reducing share count than in investing in the company. Corporations will continue down this path until new laws are enacted, and they will become more emboldened with time. Gone are the days when there was a semblance of caring for the investor; insiders are only concerned with how much they can make, and they don’t care if they destroy the company in the process. Extracted from March 31, 2019, Market Update

Market Predictions July 2019 Update

Despite the markets reaching new highs, bullish sentiment isn’t increasing as one might anticipate. Nevertheless, this week, the anxiety gauge underwent one of its most pronounced shifts in a long time. It’s just a small step away from entering the moderate zone, marking one of the most significant moves we’ve witnessed this year. The notable difference between the anxiety and sentiment indicators (displayed below) suggests that in the short term, we should be ready for increased volatility.

Another interesting development is that for the most part of 2019, bullish sentiment has traded well below the historical average of 39. Now let this sink in we are in one of the longest bull markets in history, and instead of soaring to the moon, bullish sentiment is trading well below its historical average. Contrast this to the sentiment in bitcoin; currently, the sentiment is close to the euphoric stage, and this latest Bull Run is only two months in the making. Extracted From July 11, 2019 Market Update

What Is the Underlying Theme During Market Turmoil?

In times of crisis, when it feels like the world is on the brink, the media often concocts sensational stories and serves them to the public, who sometimes follow blindly like sheep.

“Investors can penalize themselves. While money market funds offer safety, they come at a cost as they accept a lower yield,” explained Jerome Schneider, the head of short-term portfolio management at PIMCO in Newport Beach, California.

“I prefer holding cash at the moment. It can provide a very reasonable return,” stated James Sarni, senior portfolio manager at Payden & Rygel in Los Angeles.

We have consistently maintained that the Federal Reserve was being untruthful about inflation, and now the truth has come to light. Suddenly, Powell is changing his stance, now pledging to exercise “patience” before raising rates. What’s the reason behind this shift? It appears to be a smokescreen; the Federal Reserve’s primary role seems to be fostering boom and bust cycles.

“I worry those investors who have long-term horizons may be hurting themselves,” said Kristina Hooper, global market strategist at Invesco in New York.

Stock Market Predictions 2019: Uncertainty equates to opportunity

As is often the case, the majority will procrastinate until the last moment, only to join the market right before its inevitable decline. For them, the future holds nothing but suffering, financial loss, and misery. Meanwhile, investors who have stayed on the sidelines have already witnessed the resurgence of quality stocks from their December lows, and the real celebration has only just commenced.

PIMCO’s Schneider articulated the situation perfectly when he stated, “They tend to play it safe for too long.”

Widespread Panic: Reacting to Everything and Anything

Mass psychology isn’t limited to the average investor. Some of the largest corporations are led by individuals who exhibit herd-like thinking, akin to lemmings, which, as we know, serve a singular purpose: to be expendable. To date, both institutions and individuals have poured vast sums of money into money market funds. As we’ve previously pointed out, the obvious culprits for this rush were interest rates, the trade war, government shutdowns, Trump investigations, and whatever other issues you can conjure up.

Money market assets skyrocketed to $3 trillion this January, reaching the highest level since March 2010. This starkly illustrates that, as always, the masses tend to lack foresight and succumb to panic at precisely the wrong moment. Well, it might be the wrong time for them, but it’s certainly the right time for the big players.

Conclusion

In conclusion, our journey through the stock market predictions of 2019 reveals a recurring theme of mass behaviour and its consequences. Historical data has shown us that stock market predictions often prove to be fallacious, leading both novice and experienced investors astray.

The advice to avoid following the crowd holds true not only for 2019 but for all years preceding and following it. In the face of market uncertainty, the majority tends to play it safe for too long, missing out on potential opportunities. This can result in missed profits and even financial losses.

The media’s role in amplifying market anxiety during turbulent times becomes evident. Sensational stories can influence investors to act irrationally like sheep following a shepherd.

The shift in sentiment and the Federal Reserve’s actions also play significant roles. While public sentiment can sometimes lag behind market realities, it’s essential to be aware of these shifts to make informed decisions.

Lastly, the surge in money market assets in early 2019 reflects the tendency of the masses to panic and seek safety in times of uncertainty. However, this behaviour often occurs at precisely the wrong time, benefiting larger players who understand market dynamics.

In this complex landscape of market psychology, it becomes evident that those who remain vigilant, avoid herd mentality, and embrace opportunities with caution are better positioned to successfully navigate the unpredictable world of finance.