A Primer on Market Sentiment


Richard Renner, Managing Director, Portfolio Manager

Much has been made lately about market sentiment. But not everybody knows what market sentiment refers to and how it could impact their portfolio in both the short and long-term. For those answers, we sat down with Rick Renner, President of Ancora’s Family Wealth Division.

Q) When you hear the term market sentiment, what does that mean?

A) Have you heard sayings like; “Buy when there is blood in the streets,” or “the market climbs a wall of worry.” All these are tied to market sentiment and the “emotions of the markets.” More formally, Wikipedia defines market sentiment as the general prevailing attitude of investors as to anticipated price development in the market. Sentiment or emotion of the markets are very powerful and should be understood, especially during extreme times.

Q) What are some of the more common sentiments that investors should be aware of?

A) The two main emotions that investors should understand are greed and fear. Succumbing to these emotions can be detrimental. Investment markets go to excess both up and down. When you lose money or underperform, fear takes over and can lead to panic. This is a time for patience and long-term focus. When the market is at highs and the “cocktail party” talk is all about how much money everyone is making in a certain asset class (i.e. stocks, gold or real estate) that is generally a time to evaluate possibly taking a little off the table. Other sentiments expressed during the course of a full market cycle are expressed in the below chart:

Q) In your opinion, what is the current market sentiment?

A) Today the markets are at all-time highs, but we do not see the greed or excesses typically associated with market highs. The market has been climbing a “wall of worry” today. Just about every lead article today is how negative the political landscape is or how long the bull market has run. This emotion is not historically typical of a “bear market” (20% drop).

Q) How does market sentiment impact your short and long-term investment thinking?

A) It is easy to get caught up in market sentiment particularly on the greed side of things. Examples are the tech bubble of the late 1990’s or Florida real estate in late 2005. We heard a lot of investors saying, “Why not put all my money in tech stocks and I can’t lose money in real estate!” When you hear talk like this, it is generally a time to be cautious on that space.

Q) What does it mean to be a market contrarian?

A) Value investors tend to be contrarians. This is an investment style that goes against prevailing market trends by buying stocks at their lows looking for a long-term recovery when the cycle changes. Contrarians tend to buy and sell against the grain.

Q) What are the one or two things investors can do to make the study of market sentiment a positive influence on their portfolio’s results?

A) Basically, you need to understand the market’s emotions and how that can impact prices in the short term. You also need to be aware of your own emotional strengths and weaknesses as an investor. Be patient with your investments provided they are diversified and of a high-quality nature and think long term.

Thank you, Rick, for your thoughts and insights.

Rick Renner is President, Family Wealth at Ancora Holdings Inc.

The mention of specific securities, types of securities and/or investment strategies in this newsletter should not be considered as an offer to sell or a solicitation to purchase any specific securities or to implement an investment strategy. Please consult with an Ancora Investment Professional on how the purchase or sale of specific securities can be implemented to meet your particular investment objectives, goals, and risk tolerances. Past performance of these types of investments is not indicative of future results and does not guarantee dividends/interest will be paid or paid at the same rate in the future. The data presented has been obtained from sources that are believed to be accurate and credible. Ancora Advisors makes no guarantee to the complete accuracy of this information. The indexes discussed are market performance indices and are not available for purchase. If you were to purchase the securities that make up these indices, your returns would be lower once fees and/or commissions are deducted. Past performance of these indices is not indicative of future results of the securities contained in these indices.

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