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When the Bulls Disappear
“Buy when there’s blood in the streets” isn’t just a cute saying, it’s great investment advice.*
The American Association of Individual Investors has been putting out a weekly sentiment survey every week since 1987. Something notable happened in the spring of 2022 that historically has been very bullish. Enthusiasm for stocks completely vanished.
There were fewer bulls in the spring of 2022 than at any time in the 21st century. To say there was a lot of pessimism priced into the market going into last year is an understatement. And so when things didn’t turn out nearly as bad as feared, the S&P gained 26% while the Nasdaq-100 rocketed 56% higher.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/d6967623-750c-4290-b23b-cbab4910b572/Bulls.png?t=1715168691)
Survey data is noisy and should be discarded most of the time. But at extremes, like in 2022, they’re worth paying attention to. The chart below breaks down the AAII Bulls readings into deciles by decade going back to 1987, and shows the average return a year later for the S&P 500. Like I said, most of the time it’s meaningless, but at the tails it’s worth paying attention to.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/12c2654e-79c2-45e9-b1b5-c564c016cdf5/image.png?t=1715168795)
We spoke a lot about the psychology of the markets this week on one of my favorite TCAF episodes that we’ve ever recorded. Hope everyone has a nice weekend.
*I know there are a million caveats to this aphorism.
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