The Investor Sentiment Cycle: An Interesting Survey from Charles Kirk
Charles Kirk has many innovative ideas that help us all think about the market in new and constructive ways. This week he conducted a private poll including 100 top professionals.
To get the maximum benefit from this exercise, I encourage readers to make their own answer the following question: Where do you think we are in the investor sentiment cycle and why? Choose a specific answer from the figure below.
No cheating! Answer first, and write down your reason in three sentences. You will learn much more by doing it that way.
The Survey Results
While Charles makes no pretense of science in determining his original sample, his work attracts a widespread following. People with varying market "ideologies" regularly read and use his recommended links and watch his new weekly chart videos (small membership fee required, and well worth it). Personally, I was quite curious about what the results would be. Here is the basic summary:
Of those who dared to offer take the poll and go on record (most I asked never responded), 63% thought the cycle had already bottomed out while 37% see further downside to go in this cycle.
Check out the article for the full distribution of results as well as many excellent comments from participants.
Regular readers of "A Dash" could probably guess my vote. I was in the "depression" camp. As usual, I am willing to go on the record. We were asked for a three-sentence comment, and I wrote as follows:
“Sentiment reflects reality, so we hit bottom post-Lehman. The depression and capitulation came in March, 2009. The slow and halting economic recovery will be accompanied by improved sentiment — a process including feedback.” – Jeff Miller, Dash Of Insight
If I had written a bit more, I would have elaborated on the feedback point. One problem in the economic recovery is the pervasive lack of confidence. Nearly every poll shows that people do not believe that any policies are working. Most think that the recession never ended. This is true across a wide swath of demographic groups, including bankers and CEO's who control investment and lending.
A successful president could lead and inspire the country: "We have nothing to fear but fear itself." Instead, we have a skeptical public asking, "Where's the beef?"
My vote reflects my confidence in the recovery (a reflection of our country and our people as much as policy), but an acknowledgment that it is a difficult and slow process. The economic rebound could have been faster and more robust.
My oft-stated conclusion for long-term investors is that we are at a point of substantially above-average opportunity for stocks. There are many companies that record great earnings with little change in the stock price. That means that P/E multiples have moved lower.
Improving sentiment means that multiples will move higher. This means that stocks will do even better than the earnings growth rate, but it is going to take time.
Meanwhile, I really liked the survey idea. It was useful to think about my own answer and to read those of others. It is a tool that I might consider using as well.