2024-04-11 13:29:54 ET
Summary
- Why do professional investment advisors and portfolio managers regularly misjudge market behaviour? Why are markets seemingly so unpredictable?
- One of the major problems with bearish psychology is that bears are constantly obsessed with economic risks while underappreciating the natural momentum lifting equity markets over time.
- Many studies, however, have shown that most investors fail miserably at market timing, especially over short time frames. Even successful market timing disproportionately favours the bulls over the bears.
- Passive money flowing into retirement and pension funds each month partly contributes to the upward drift in equity markets over time. However, there are much larger long-term macroeconomic forces at play that underpin this upward momentum in equity prices.
- Risk aversion makes "avoiding losses" a constant temptation to time equity markets while making "sitting in cash" seem rather harmless.
There is growing consensus among Wall Street analysts that the relentless bull market rally in the S&P 500 Index ( SP500 ) is simply unsustainable, and that investors face the imminent risk of a sharp reversal. Such bearish warnings offered by the financial media must have become so familiar to readers that they are beginning to sound like mere complaints rather than professional investment advice. And one can't help but wonder why the consensus has so often been caught on the wrong side of the market. Why do professional investment advisors and portfolio managers regularly misjudge market behaviour? Why are markets seemingly so unpredictable?...
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For further details see:
S&P 500: How Bearish Psychology Leads To Poor Performance