Joining the stock market consensus can be a financially dangerous thing.
By the time a trend is fully mature, many investors have cast their lot with the prevailing market view. And history shows that the public is almost always on the wrong side of the market at major turns.
Keep in mind that when the public buys stocks late in a bull market, they often enjoy paper profits for awhile, but they are never allowed to keep them.
The Elliott Wave Theorist, February 2011
Even after the greatest bull market in U.S. history, the record shows that most investors were financially worse off near its end. And that's not the first time this sort of thing has happened:
An analysis of Federal Reserve data ... reveals that two-thirds of American households failed to increase their retirement wealth "at all" from 1983 to 1998 despite that fact that in this period stocks enjoyed their biggest bull market ever. Moreover, the retirement wealth of the median household during that time actually fell 13 percent. Given that dismal performance during a huge bull market, you can imagine how investors typically ravage their finances during a bear market. In 1909, a broker using the pseudonym Don Guyon wrote a small book called One-Way Pockets. He was utterly mystified as to why, after a full cycle of rise and fall after which stocks were valued just where they were at the start, all his clients lost money. His answer, in a nutshell, is herding. His clients felt fearful at the start of bull markets and so traded in and out constantly. At the market’s peak, they felt confidently bullish and held much more stock "for the long run" ... (emphasis added)
The Elliott Wave Theorist, April 2004
Interestingly, the well-known finance professor who wrote the book Stocks for the Long Run was just interviewed on CNBC. In the Feb. 2 interview, the host introduced him by saying, "He looks at the market as a historic buying opportunity."
The professor is not alone in his bullish view – far from it. The American Association of Individual Investors reports that the level of bearishness hit multi-year lows in January.
The one-month (four week) average of the percentage of AAII bears dropped to 19.2%. ... The reading makes the contingent of AAII bears smaller now than it was when the Dow reached its all-time price peak in 2007!
The Elliott Wave Financial Forecast, February 2012
A telling chart (for subscribers only) accompanies the above quote, which also indicates how one famous investor is solidly in the bullish camp.
Yes, a bullish consensus appears to be crystallizing. But that doesn't mean one should take a contrarian view for its own sake. One must look at the entire market picture, and ask, "Where are we in the market's main trend?" and "What are other indicators revealing?"
We've asked and answered those questions in the Financial Forecast Short Term Update.