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Barry Ritholtz

Buying Stocks Based on How Other People Feel

Market indicators that rely on readings of investor sentiment usually offer little value in knowing when to buy or sell.

One of my favorite pastimes is dissecting accepted Wall Street wisdom to see if it contains any value for investors or traders. Often, upon examination, the widely held beliefs turn out to be closer to magical thinking than financial acumen.

One of the more recent examples is the way some analysts use data on sentiment to determine how much an investor should allocate to equities. The problem is that the sentiment data is inconclusive and sometimes contradictory. There is no signal within the noisy data.