Hi Michael,
Do you have any methods to analyze "investor behavior?" I realize this is rather silly question and comes dangerously close to technical analysis but I have been trying to gather data on this issue and so far all I've got are some bogus psychology theories and useless statistics.
Last winter, with bearish view on the market I've converted all my assets to money market funds. When the market dipped this summer I bought some stocks and many calls in dozen different companies. This part was time consuming but easy; the company fundamentals were available and analysis methods used on their prospectuses are, well, traditional techniques. Deciding appropriate time to sell the calls, however, is giving me headache. While the prices of my calls have appreciated, they are still not "over valued" by fundamentals and I'm more concerned about general market collapse before my calls expire.
In an attempt to "gauge" the market sentiment, I've visited local discount brokerage offices where stock market "in crowd" hangs around. I remember the NIKKEI stocks in 1989 when it hit near 40000 the Japanese investors were euphoric with expectation of 50000 within 1990; they were not at all concerned with the price to earning ratio of 400 on some of widely held stocks. The "in crowd" I've found in Cupertino, Santa Clara, San Jose and Palo Alto were definitely enthusiastic but not quite euphoric yet. Their overwhelming support for Intel is predictable in Silicon Valley and as I've mentioned before, they do not really analyze anything. Their method of selecting stocks is similar to my wife's grocery shopping; they look for "sale on name brands." If the company name is familiar (they've seen ads on TV) and if it's on sale (it's at or near annual low) then it's a good buy. Once they own the stock, they cling onto them with religious fervor. One strange thing is that they cling tighter onto losing stocks because they don't want to lose real money by selling at a loss?! While most of them knew about Dutch tulip mania and claim they would never pay $10000 for a tulip bulb, one of them did pay that much for a baseball card.
I believe current market is over valued and some time soon the financial institutions will pull their money out based on fundamentals. However, with so many individual investors with their vaguely bullish sentiment involved I have no concrete method to determine the "individual investor behavior" factor creating artificial lift to overall market. Please help.
Thanks,
NI
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