The stock markets are said to rise and fall based on data from a variety of reports. Have there been any studies on the effects of emotion and people’s general “feelings” on the markets and how the markets are affected by them? It seems that at various times the market does not move based on data – either in whole or in part. It moves, rather, based on well, I don’t know.

The different papers and websites seem to substantiate a rise, fall, or stagnation on what seem to be non-factor reasons. An analogy of this would be a typical write-up on Yahoo Finance which writes that while a recent GDP report gives bad news for stocks, the markets continue to push into record territory because there are rumors that company ABC might be consider acquiring company XYZ. It’s like they are just searching for reasons to explain why the market does what it does.

I am sure there is a lot that goes on behind the scenes and in the trenches that many of us don’t come across on a regular basis or don’t have access to. Who really moves the markets? Is it the institutional investors such as mutual funds and investment banks, individual investors, a combination of both, or something else? Is there any resource out there that breaks down the volume of trades on a given day based on who traded? Example: 2 million shares traded today, 70% by institutional investors, 25% by individuals, and 5% by others?

Chris Johnston

Sentiment in the indicators I follow are very bearish, which is not typical of market tops. Typically they are made when sentiment indicators are very bullish. It is for this reason that I think this run is going to continue for a bit. There are other reasons that are more detailed, but I have alluded to them in other posts in here. The collapse of the bond market is the only fly in the ointment right now, and that is a significant influence on stock prices. However, these divergences sometimes carry on for a few months before bringing things down.

I am just beating a dead horse in here, because so many people here just want a tragedy in everything. I will not post anymore on this subject. My conscience is clear because I have tried to educate people in here on some of these things, yet too many people do not want to listen.

“Have there been any studies on the effects of emotion and people’s general “feelings” on the markets and how the markets are affected by them?”

Rational market theory is only valid in the long-term. Short term valuations can be irrational, as seen in CA home prices right now, and at any time in some stock or another.

Benjamin Graham described a hypothetical “Mr. Market” crazy guy with wild mood swings as a way to explain this phenomenon. A company’s fundamentals don’t swing rapidly or widely, so why should the stock price? It’s crazy Mr. Market, he’s at it again! Buy only when the crazy guy is offering you a great price.

Chris I agree… I think the parallel is in the housing market. Greed and complacency created the housing market. And I don’t mean greed in the more negative sense, but most money is invested without being actively managed. And everyone wants the extra buck around the corner. People are afraid to buck a trend which still shows positive because they are worried about the extra margin they might lose at the top by getting out.

The complacent investor becomes the frightened one bolting for the door when we have the next major correction. Too many people lost big in the tech bust to have forgotten the lesson of how fast it can get bad. Instead of riding the wave down (like so many of us did in tech, people will take 20% losses in their portfolio to not get wiped out again. (Which seems contrary to logic as the tech stocks were really based on ridicules fundamentals, not just bad ones like our current P/E’s.

Personally – I don’t want a tragedy. Even though I am 90% in cash and bonds I don’t want the economy to do what I fear it is going to – that is implode. Anyway I am not worried about losing a huge upside – I would rather forgo the upside and protect the downside right now. That is why I sold my house and am renting. The housing market has already begun it’s descent and the stock market will go with it when housing becomes a superdrag on consumer spending.

I think the stock market will last for a while. I don’t know how long, nobody does. Money got to go somewhere.

It’s not going into R.E. related business.
It’s not going into housing itself.
It’s not all going into international stock & bond market.
It’s not all going into money market fund or Cert of Deposit.

So, where do you think some of the money will end up?

Stock market.

I have placed 70% of my bet on it. We’ll see. ^_^ My worst case scenario is that the total portfolio will drop 40% in real value. Even that, I’ve positioned myself to buy more if this happen.

Just my 0.2 cents,

Masayako

The global bull market is unreal, masayako. I thought for sure we’d have the much mentioned “pullback” by now, but the markets have just shrugged off every negative impetus.

Cash, even at 5%, just reeks right now.

No way Chris… You better not stop posting on this subject. Your analysis on both stocks and bond markets has been by far some of the most useful information on this website.

Please keep beating the dead horse.

SD Realtor