The Power Of Negativity

Today's action is the reason I like to buy when investors are so negative. Purchases in periods of high pessimism work out the vast majority of the time. I did not think we would be higher today when I went to sleep last night. At best I thought the damage would be minimal. But after a 70 point drop in the S&P 500 and with many sentiment indicators showing the highest pessimism all year there were few left to sell and probably a few leaning too short.

During scary periods in the market I get scared as well. But I have seen time and time again that the scariest periods with the highest levels of pessimism are generally the best buying opportunities. During these periods there are always good reasons to sell and be pessimistic. But it rarely pays and it is the reason I pay such close attention to sentiment indicators.

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