Friday, 6 March 2009

How do we feel? Hmmmm.

Consumer confidence is at all-time lows. Not a surprise with all the devastation in the economy and markets that has taken place. Consumer confidence is just another barometer for social mood. The social mood has turned negative and pessimistic. The latest poll conducted by the American Association of Individual Investors survey was 70.27 percent bearish and only 18.92% bullish. These are record levels of pessimism. People are now waking up to the fact that things in the economy are not good, and the future does not look to bright either. The media and pundits will try to give statiscal numbers like consumer confidence and investor polls a significant meaning. These numbers in actuality are really not all that important. How does it help you make an investment decision? Does it tell you the best time to get out of the market? Does it tell you the best time to get into the market? Does it tell you how much money to put towards particular investments? The answer to all these questions is emphatically, No! So who cares what the consumer confidence number is? Therein lies the question. The answer is that these statistical measures are a gauge of sentiment. Period. They are important because they tell you how the market is feeling and gives you a sense of what the "herd" is thinking and feeling. The human element is crucial to market understanding. When everyone is ebullient and sanguine, it is time to be cautious because a turn down in the markets may be around the corner. And when everyone is fearful and glum, it is time to hopeful because a turn the other way may be on the horizon. In essence, separating yourself from the herd will allow you to spot opportunities in the market well before others realize what has happened.

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