Many of you know that I am a fan of the comedy series Seinfeld. I was reading some research published by Tom Lee, Head of Research with FSInsight when the final episode of season 5 came to mind.
As you know if you watched the program, George Costanza’s life did not turn out quite how he hoped it would. When thinking about his life with Jerry while eating lunch at the café George opined that every decision he had ever made was wrong and that his life is exactly opposite to how it should be. Jerry suggested that if every instinct he does is wrong then the opposite would have to be right. George ponders this and agrees. He sees a beautiful woman at the counter. He wants to approach her, but his instinct is not to. So, he does the opposite. He walks up to her and introduces himself by saying “Hi, my name is George. I’m unemployed and I live with my parents.” Upon hearing this, the young lady seems to be very impressed with George and decides to date him. Doing the opposite worked for George.
Each week Tom Lee publishes his weekly thoughts on Equity Strategy. On the 28th of January he wrote about the AAII Retail Sentiment (American Association of Individual Investors). As of that writing, the general American sentiment about the current stock market is extremely bearish or negative. In fact, it happens to be at the lowest reading since the pandemic began. By going out on the timeline even further, he points out that the current sentiment is in fact in the top five most bearish times since 2009! During this time period (2009-present) the sentiment has gotten this low on six occasions. What is amazing is that every time after hitting these lows, the market has gained on average 13.8% over the next three months. 5 out of 6 times, just one month later, the mean gain is 8.4%. And finally, 6 out of 6 times, the six months mean gain was 19% and the twelve months mean gain was a whopping 32%.
Granted, this is data that is looking in the rear-view mirror, but as we have seen, history often repeats itself. I think Lee is on point, however. We will see continued volatility in the markets sometimes extreme volatility. Just looking at the data tells me the average investor is often quite wrong. They sell when they should be buying, and they buy when they should be selling. Right now, many are doing the wrong thing. They are allowing their emotions to dictate their investing actions as opposed to leaning on the data. I get it...people are nervous. But maybe, just maybe, if we take the Opposite Costanza approach we might come out ahead.
Thank you for your loyalty and for your valuable time.
Sincerely,
Brad Murrill, CEO Redfish Capital
brad.murrill@redfish-cap.com
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