Can Everybody Be Right

It appears hedge fund managers are very gloomy. From Marketwatch:
Hedge-fund managers have become more bearish on equities because they're concerned about slowing economic growth, according to results of a recent survey released Monday by TrimTabs Investment Research and BarclayHedge. 
 
The firms surveyed 104 hedge fund managers over the past week and found that 47.1% of them are bearish on the Standard & Poor's 500 Index. That's up from 33.1% a month earlier.
Just over 17% of those surveyed were bullish on the S&P 500, down from 33.9% a month ago, TrimTabs and BarclayHedge reported. 
In my experience betting with the crowd when there is such a strong consensus is not a good risk/reward proposition. If there is a bright side for the bears it is that many were burned being short off of the March 2009 lows, so I doubt that they are aggressively shorting.

2 comments:

Market Owl said...

Bearish sentiment doesn't seem extreme to me. And I don't like to use sentiment unless it is at an extreme.

It still seems like the consensus believes that we're in a trading range and that you should buy 1040 and sell 1120.

Tsachy Mishal said...

If its not extreme than its pretty lopsided. The crowd was buying puts into this mornings test of 1040.

How do you explain the hedge fund survey and the AAII survey?