What’s Market Sentiment?
Sentiment is the prevailing feeling in the market from everyone who’s trading on it. Be they optimistic or pessimistic; moods swell around individual stocks, entire exchanges, whole countries, and even different forms of investment like bonds and real estate. We call it sentiment!
Money and Emotions
When we feel strongly about a stock, we try and make an argument about it. Whether our position resembles fact or fiction, helping us make money or lose money, it’s indicative of our sentiment.
If a huge news story breaks, our immediate gut reaction to that news is again, our sentiment. Now, there are two ways it can go!
Conjure the image of a bull – aggressive, fearless, and charging forward. Needless to say, a bull on the stock market isn’t going to cower. Bullish investors thrust their horns upwards, buying into and believing in stocks that are tipped to do well in the future.
A stock is called bullish because investors believe it’s going to go up, not because it actually does. A soaring stock might enjoy a very bullish sentiment until it releases a new product which flops. Then, the market might start fearing it could go down. So the sentiment turns bearish!
Conjure the image of a bear — sluggish, protective, and advancing cautiously, and when it attacks, it swipes its big claws in a downward motion, ripping you apart. Priority number one of an investing bear is not to lose money, and that drives the so-common negative sentiment it carries around. A bear will try to give a stock a pre-mortem, doing all it can to kill the idea of investing in it.
Bearish sentiment is known for being even more strongly felt than bullish sentiment, and it’s just as infectious, too. The stock market famously convulses with bull and bear sentiments that bring with them great booms and busts. For one reason or another, a bearish sentiment always follows the peak of a stock boom. It’s wild out there!
The Right Sentiment
Investing is a tough business, not least because money can be an emotional topic. Caving into market emotions rarely ends well, but keeping bias at bay is also a real challenge!
To be in the money, we investors must often play the waiting game, keeping a rational head until we can profit from the hoodwinked sentiment of others. In the meantime, we can masterfully balance our own!
As for day-in-day-out risk, be prepared to lose everything. Humans are natural born pattern-seekers, and it’s easy to mistake shapes in the clouds for opportunities to make money.
If saving sounded too dull and day trading sounded too hit and miss, try investing. Rather than looking only at the stock chart, active investors believe in what’s underneath. Weeks are spent turning businesses inside out and upside down, searching for clues that might reveal how much money they’ll make in the future. Any positive surprises in that department will move the stock up, but what investors really love, is the stock of a company they can hold forever. That way, they benefit from lower taxes, lower brokerage costs, and the magic of compounding!
Investing, however, isn’t just for full-time market detectives. Funds bring together a basket of pre-selected businesses for you to track passively, all fitting different themes. They allow you to get on with your life and have your money working for you in the background, but of course all investments can go down.
Investors always need to know why they own what they own, and stay disciplined when markets tank. Unlike saving, invested money can do a disappearing act. And unlike day trading, you can only sit back and watch.
Some buy stocks, some short stocks (betting against them), and some draw an instant passive income from dividend-paying stocks. Most can be sold at a moment’s notice, and light dabbles in Invstr’s fantasy finance can go a long to honing your contrarian instincts. Investing works!
Time for you to take charge!
Priority number one is not to lose money, but making it is a close second. Carve out that emergency fund, pay off any onerous debts, and nail down a few fantasy stock market bets. You work hard for your money. Time for it to work hard for you!