Personal Wealth Management / Expert Commentary

Ken Fisher, Explains Ineffective Ways of Evaluating Investor Sentiment

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses some of the challenges associated with measuring investor sentiment. Understanding whether investors are likely to become more pessimistic or optimistic can be an important indicator of future demand for stocks.

According to Ken, some common investor sentiment indicators may not be as useful as many perceive. Historically, Ken says you could assess investor sentiment relatively well by looking to the media for signs of shifting sentiment. Unfortunately, today’s polarized media environment increasingly resorts to sensationalism, making it harder to get an accurate reflection of investor sentiment. Additionally, consumer sentiment indexes, while often cited as useful, aren’t predictive according to Ken. He says these consumer sentiment surveys tell you where things are, but can’t be used to reliably forecast the future direction of stock prices.

Transcript

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Title screen appears, “Fisher Investments' Founder, Ken Fisher, Explains Ineffective Ways of Evaluating Investor Sentiment.”

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A man appears on the screen wearing a navy suit, sitting in an office with a view of a thick forest behind him from the window.

He begins to speak.

A banner identifies him as Ken Fisher, Executive Chairman and Co-Chief Investment Officer, Fisher Investments.

Ken Fisher doing hand gestures time to time explaining.

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Ken Fisher: Understanding how sentiment is changing, investor sentiment, is an important consideration thinking

about how markets might behave.

The more investors are extraordinarily pessimistic and likely

to get less so, the more likely you

are to have an upmarket, the more investors are more optimistic and likely to get more optimistic, you might even get more upside.

But if they're too optimistic and about to get more pessimistic, markets are likely to do badly.

And everyone knows that.

Ken Fisher: The question is, what are things that you might use to measure sentiment?

And what I'm going to say now speaks to a point that's for me been a point of some confusion in my

life, and that's that it used to be true.

And this may not ring a bell for you very well if you're a younger person, and don't have these older memories, but it used to be true that you could actually assess sentiment relatively well by focusing on media

and seeing signs of sentiment in media.

Ken Fisher: But media has changed so much since the maturity of the Internet, to where because what media sells to advertisers is based on getting you to click, and then time you spend paying attention to that which you clicked on.

There's a tendency for it to become more extreme and to be more dramatic and to not necessarily reflect sentiment so well.

And then, of course, also a lot of this, if you're like watching television, for example, whether you're watching MSNBC or Fox, is very politicized and you know it's very politicized, and if it's consistent with your political views and ideologies, you like it, and

if not, you dislike it.

And you know all that.

I'm not telling you anything you find shocking.

Ken Fisher: And because of that, it's harder to use media to assess sentiment.

There are things you can do to try

to assess sentiment, but it gets not so precise, requires a lot of different inputs.

I can't depict that for you easily.

Some of the things that people

often cite are not terribly useful.

For example, more and more things we know today aren't so useful for this.

Things like the consumer sentiment indexes.

Ken Fisher: These consumer sentiment indexes actually have always been measured to be coincident indicators.

They don't help you predict, they tell you where things are at the moment, but you can't use them as a contrarian indicator.

So sadly, this becomes a harder and harder tool to you.

I wish I had a better answer for

you, but that's the way I see that. Thank you.

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A series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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