Popular blogger contrarian indicator

Popular blogs may not be the best place to find profitable ideas. This poll has become a good short term contrary indicator. Every time it gets released and shows that the popular bloggers are bearish, the market pops. Ever since it started the popular blogger sentiment has been more or less negative and the market has kept going up.

What determines popularity. Bearish blogs are more popular. Blogs which are wrong for over a year are more popular. Blogs which promote conspiracy are more popular. Blogs which offer newsletters are more popular. Blogs good at marketing are more popular. So if you don't want to beat the market just follow the popular blogs!!!

Update:
A little bit of truth serum has the bloggers participating in the Tickersense poll up in arms. Tradermike is outraged by the conclusion. Most of the arguments being presented are about semantics and not about data or methodology or what that poll is indicating.

When comparing three sets of data bullish, bearish and neutral when bearish numbers are the larger bears are in majority. All bulls and bears poll are presented that way.
So when 41% are bearish, 34% are neutral and 23% are bullish, who is in majority.

Forget the semantics just go through the content of the bloggers participating in the poll and look at what they have been writing about.

Look at how many of them have been bearish for ages, nothing changes their opinion, every data point is twisted to fit their hypothesis. Some of them have called for 50% drop from current levels by end of this year. For them Alcoa earning is an indicator of earnings for all stocks. Some have got stuck on housing bearish scenario and just got stuck their.

Then there are bloggers on that list who will make very good novelists. Their speciality is conspiracy theories. Often Goldman Sachs or the Fed is the villain in their fiction. Day after day they come out with elaborate conspiracy theories to explain the markets and call to action like, the constitution of USA should be changed because the market is going up! They have extremely large followings.

Then the third set are the charlatans, who are basically selling newsletters, software's, advisory services or TV punditry. Now these hucksters are expert at marketing. Some of them have been interviewed and have admitted they even don't earn their living from trading but from writing newsletters or other activities. But because of their skillful marketing and seduction techniques they have large following.

So if you want to follow them, who am I to object to.

Read my previous posts on these topics
Don't follow an analyst unless you understand Cognitive Dissonance
The Internet has provided good platform for many analyst to broadcast there view about markets and economy. The interactive nature of the media has also many benefits and many drawbacks. If you want to follow any analyst you must understand the dynamics of the media and also the professional hazards of following an analyst. In simple language avoid the risk of cult following.

The biggest problem to watch for in analyst is what psychologist call Cognitive Dissonance. Cognitive Dissonance is a phenomenon in which an individual or a group of individual with an established opinion refuse to accept another point of view, in spite of new irrefutable evidence suggesting quiet another conclusion.

The stronger their original opinion, the more resistant they are to changing it and tend to persist in creating new argument in favor of their original views.
The other problem which further accentuate this problem is if the analyst has large followers, or recognised by media as authority or has wide access to disseminate his or her views and discredit challengers. As a result both analyst and the followers are slow to change their established opinion as that has extremely high social and psychological cost. This leads to market behaving differently from the analysts firmly held positions for extended period of time. So an analyst who publicly says Dow 5000 or Dow 100000 continues to find new reason to justify his or her call inspite of market going the other way.

The Internet by adding interactivity to the process further accentuates this process. Read comments on most widely followed bullish or bearish or value focused or growth focused analyst site or blog. You will notice any dissent is swiftly ridiculed or chased away. Then it becomes a love fest between analyst and his followers. They act to reinforce each others belief, work to discredit new data points, impute motives to others or simply say a data contrary to their belief is "spin" or " manipulated". Now this is a typical cult behaviour. Day in and day out if such things get reinforced then it becomes a very strong cult.

Very few investors/ traders have the psychological make up to avoid such cults and change their opinion and accept alternative reality or accept they are wrong and quickly seize new opportunities.

Cognitive dissonance, refers to our desire to avoid believing two conflicting things. Whereby the brain attempts to find support for the belief that carries the greater attachment or emotional involvement by finding a way to ignore or discount the conflicting belief.

In the classic study of this characteristic, researchers found that once a person had purchased a particular automobile, they would avoid advertisements for competing models and seek out those for the model purchased, so as to avoid the pain of regret that was bound to follow if they were to realize they had made the wrong decision. One way to avoid regretting the purchase decision is to (irrationally) filter the information received (or believed) after the decision has been made. Similarly, people tend to minimize the importance of subsequent information that might call their original decision into question.

The upshot is that we resort to various subconscious mechanisms to defend our existing beliefs, even where the desire to maintain these beliefs has a less-than-rational basis.

Knowing this, how do investors adjust their behaviour to compensate for the tendency to avoid or deny new, conflicting information? The answer is to seek out contrary opinions; to realize that research doesn't stop once a decision is made; to strive to identify mistakes as early as possible and take pride in the ability to do so.

And my this post:
Media bias
A very though provoking lecture on capitalism and belief in the future by Johan Norberg, a Swedish writer devoted to globalisation and individual liberty. It reiterates my point about cognitive bias and why you should not get seduced by bearish analysts constant sky is falling rhetorics.

The media exploits this interest in problems and disasters. We want to hear the latest, horrible stories, because our stone-age brains think that this is important information upon which we must act. At the turn of the Millenium, a survey from New York University made a list of “Journalism’s Greatests Hits”. Would you expect news stories about new vaccines, fantastic inventions, the rise in living standards, or the spread of democracy from 0% of the countries 100 years ago to 60 % today? You would have been disappointed. The greatest hits were all about war, natural disasters, dangerous chemicals and unsafe cars.

Risks, horrible acts and disasters are easily dramatised and cheap to produce. That is why crime is such a popular theme on the news. Studies from the US show that the more time people spend watching the TV news, the more they exaggerate the extent of crime in their cities. A fascinating study about Baltimore showed that 84 percent feared that criminals will harm them or their loved ones, but at the same time almost everybody, 92 percent, said that they felt safe in their own neighbourhoods, of which they have first-hand knowledge. They all think that there is a lot of crime in Baltimore , but they all think that it takes place somewhere else in the city, in the places they only know about from the media.

These results appear again and again in surveys. People think that the environment is being destroyed, that the economy is going to bits and Germans think that the reunification of Germany was bad for most people. But they also think that their local environment is good, that their personal finances are improving, and that German reunification was good for their own personal situation. Problems and disasters are always somewhere else. And if we all think so, we must all be wrong.

The problem with a globalised world is that there is always a flood somewhere, there is always a serial murderer somewhere, and there is always starvation somewhere. And therefore there is constant supply of horrors to fill our TV screens. If you don’t know the background or study the statistics, it’s tempting to conclude that the world is getting worse.