Private investors are more pessimistic than in 13 years – this is my chance

The development of stock prices is greatly influenced by the emotions of market participants. Fear and greed alternate regularly, resulting in exaggerated ups and downs. The Fear and Greed Index shows what emotions are currently dominating the stock market. Unsurprisingly, the main number is currently showing fear (22.09.22, applicable to all information). Another interesting indicator corresponds to the same.

AAII sentiment survey

The Association of American Individual Investors (AAII) asks US private investors weekly whether they expect stock prices to rise, remain flat or fall over the next six months. Thus, this survey reflects the sentiment of individual investors in the US.

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This week, 60.9% of respondents said that they expect a decline in share prices. Last week it was still at 46.0%. Only 17.7% now expect prices to rise. Since the start of the survey in 1987 this is only the fifth time more than 60% of investors surveyed expect prices to fall. The last time was in 2009. in March, near the bottom of the financial crisis. The historical average of the poll is 38.0% Upside, 31.5% Neutral and 30.5% Expecting a Bearish Price.

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Accordingly, the difference between expected rising and falling prices is also exceptionally large. The AAII says that such a large spread has historically been higher than average over the next six and 12 months.

Be greedy when others are afraid

So the AAII sentiment survey is another data point of high levels of pessimism in the stock market. Institutional investors are also extremely pessimistic about the future. In June, Bank of America 300 fund managers based on their assessment of global economic growth. Their assessment was negative than since 1994.

So the mood is very bad. This can easily be seen from the prices that have fallen since the beginning of the year. The S&P 500 and DAX fell by 22%, the Nasdaq by 30%, and the prices of many (former) bulls were hit even worse.

This is my chance. I quote Warren Buffett, “Be afraid when others are greedy. Be greedy when others are afraid.” Because while the current combination of high inflation, rising interest rates, protracted war in Europe, ongoing coronavirus restrictions in China, etc. may seem dire, it will all pass.

However, I don’t buy blindly and pay special attention, no Anchor effect fall into Today, I focus on financials, outlook and valuation and continue to increase my holdings in quality companies. Because at some point the prices of these stocks will rise again and fear will turn to greed again.

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Hendrik Vanheiden does not own any of the shares mentioned. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool does not own any of the stocks mentioned.

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