Incredibly last week according to the American Association of Individual Investors, bullish sentiment among individual investors recorded its lowest reading since the darkness of the March 2009 lows.
If I recall correctly there have not been many better times to buy stocks ever than March 2009. I think a steady diet of volatility has many individuals saying enough is enough. I need to sleep better at night. And this is likely why we are seeing such great bargains in large cap quality stocks and potentially a bubble in United States Treasuries.
Here is an article on legendary investors pounding the table for blue chips.
And a warning on US Treasuries.
But it isn’t just individuals who are losing their taste for equities.
For the first time since at least 1997, fewer than 29 percent of ratings for stocks covered by brokerages worldwide are “buys,” according to 159,919 recommendations compiled by Bloomberg. Analysts are turning more pessimistic even as they push up estimates for profit growth among Standard & Poor’s 500 Index companies to 36 percent, the highest since 1988.
More than 54 percent of ratings for companies in the U.S., U.K., Japan and Brazil are “holds,” the highest level since Bloomberg began tracking the data in 1997. While the proportion of “sell” ratings in the U.S. has fallen to 5.1 percent, half the level of 2003, the total combined with “holds” reached a record 71 percent last month, the data show.
And of course we all know that most of the time hold basically is analyst code for sell.
While pessimism is increasing, analysts say profits for companies in the MSCI World Index of 24 developed nations will gain 28 percent in the next year. The MSCI index trades at 11.5 times forecast earnings, data compiled by Bloomberg show. Except for the six months starting October 2008, the index has never traded below 12.5 times reported earnings.
The common theme that I hear on CNBC is that everyone is worried about a double-dip recession and that there is too much uncertainty right now.
As Mr. Buffett has so eloquently stated “You pay a very high price for a cheery consensus”. When the mood starts to turn dark like this is when a good value investor should sit up and start to pay attention.
If you are looking to profit from uncertainty I’d suggest you have a look at oil producers in the Gulf of Mexico that are still selling for half of where they were before the BP spill (and they weren’t overvalued then). This despite clarity on pending government legislation that will clearly allow for all companies large or small to resume operations.
Here are some ideas:
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