Accuracy of emotions as stock price counter indicator

[Orbit]

Interesting read about Veblen goods there. It linked to things like "Hot hand" fallacy, which I think also definitely plays a role in stock momentum.

Just think of the number of "high profile" analysts, who got one big call correct and famously made lots of money, then continuously performed below average for years. Yet they persist in being seen as "The Analyst Who Made That Great Play".

As humans, we are not built to accurately calculate NPV projections of complex global businesses. We are basically apes who are good at throwing objects in parabolic curves.
So we rely on a bunch of heuristics and hunches to work out investment strategies.

Things like social proof play a huge role. Think of a restaurant with a long queue out the front on a Saturday night.
It FEELS much more appealing than the exact same restaurant when it's empty during lunch hour on a Tuesday. Even though the quality would presumably be the same.

A lot of unconscious stuff goes behind the scenes.

Probably on the TMC investment forum, there might be a correlation between number of rates of like/funny/love, with sentiment, with stock price turns.

 

[ggr]

There have been times in the past (certainly not at the moment) when I have simultaneously thought it was a good time to buy, but maybe I should sell. Or I should move stock to options, or options to stock. Whenever I find myself thinking like that, I give myself a one-day time out.

 

[Hogfighter]

Paging @Hogfighter, the originator of this idea here (as far as I remember).

Thanks for the shout-out. Absolutely you have to keep your personal emotions out of investing.

I study the difference between how Tesla is actually doing and compare it to the sentiment on social media and the news outlets. When the two are closely aligned, the Hog Negativity Index is low, and it’s a good time to scale back on your position. When the two are completely out of whack, as it was just before the latest ER, it hit 10....and here’s why. For about 2 weeks you literally couldn’t read a positive article re: TSLA, and yet they were producing more cars than Porsche and were marching towards profitability.....which meant ‘time to load up the truck’.

 

[Orbit]

The Hog Negativity index sounds very useful, props to the creator.

Do any HNI scholars (or even the creator) publish official updates on where the index is at?
Do you have any analysis on how reliable it's past predictions have been?
Also, is there a Hog Positivity index to track when sentiment is euphorically out of alignment with reality?

 

[Hogfighter]

The Hog Negativity index sounds very useful, props to the creator.

Do any HNI scholars (or even the creator) publish official updates on where the index is at?
Do you have any analysis on how reliable it's past predictions have been?
Also, is there a Hog Positivity index to track when sentiment is euphorically out of alignment with reality?

I Update the HNI monthly, or whenever there’s been a big movement one way or the other. I only post it on TMC every now and then. It’s been quite reliable for me over the years, but I’d say in general I’ve bought too early....in other words don’t expect the HNI to fall as fast as it climbs.

The times it’s been highest were (1) when the SP was around 31 and no one thought they’d get the S to market, (2) the f*res of Nov 2013, (3) the X ramp was happening, but media was still negative in Nov 2016, and (4) this past July.

It’s never been positive, but definitely ‘absence of bad news’ affects the HNI in a positive way.

 

[KarenRei]

Interesting read about Veblen goods there. It linked to things like "Hot hand" fallacy, which I think also definitely plays a role in stock momentum.

My favourite example is "funds that beat the market". You hear the pitch that, "Look at all of our funds - most of them have beaten the market in most years, sometimes significantly!"
"So... if you have a fund that after several years is underperforming the market, do you kill it off and replace it with a new one?"
"Well, yes, of course"
"Which would leave you with new funds, whose records are ill-established, and good funds?"
"Yes."
"Like you have?"
"Yes."
"Would not the exact same thing happen if all of your funds' investment strategies were literally chosen at random?"
"...."

-----

Another that I see the whole time is "stock chart pareidolia", where people imagine all sorts of lines onto stock charts to prophecy into the future. And yes, I know there are psychological factors when it comes to the market - resistance factors at old highs / lows, numbers-ending-in-five-or-zero, etc. But for a lot of the stuff, they might as well just hand a child an Etch-A-Sketch and say "have at it".