By Joe Cardone
SENTIMENT is one of those concepts in the stockmarket that is usually to blame when nothing else rationally can.
If sentiment could reliably be measured, then investors would be less inclined to be concerned about it, since of course, it would make sense.
But sentiment is the bit of human interaction that makes the stockmarket truly a place of animal spirits in the short term, particularly in its most-extreme form: panic or euphoria.
Can sentiment be measured? Yes, it can and it comes in two forms: qualitative and quantitative.
The first looks at various media stories – finance journals, business surveys and many others – to gauge what others are thinking. The quantitative stuff looks at things such as short-interest positions, ratio of put options to call options to gauge what others are doing.
The two tend to go together to get a sense of developing trends or determine extremes in sentiment in order to garner signs of possible turns in sentiment.
An example of a sentiment gauge that is used widely in the US is the “Investors Intelligence Survey”. Established in 1963, it is one of the original pioneering sentiment tools for the financial markets.
Each week, the organisation surveys more than 100 independent investment newsletters editors. They report the percentage of advisors who are bullish, bearish, and those who anticipate a market correction.
Surveys of the bullishness or bearishness of investors and advisors make for excellent contrarian readings at extremes.
On one hand, excessive bullishness can indicate that buying pressure has peaked and that the risk of a negative surprise is heightened.
If pervasive bearishness exists among investors, even bad news won’t necessarily cause the market to go down any further since the selling has already occurred in advance of this news.
The accompanying chart reflects the “Investors Intelligence Survey” data since 1990.
The green line reflects the net difference between bullish percentage and bearish percentage.
The red circles are occurrences when the net difference between bullish percentage and bearish percentage is as low as the current readings.
As one can see, such bearishness is ever seldom seen and not in the past 14 years. 
In fact, the bear market of 2000-2003 never saw “Investors Intelligence” figures as bearish as they currently are in the US. Historically, this has marked very good buying opportunities for long-term investors.
One of my favourite books on the subject of sentiment, particularly as it addresses the idea of contrarianism, that is, going against the crowd is a book by Charles Mackay called “Extraordinary Popular Delusions and the Madness of Crowds” first published in 1841 (I know, I should get a life).
The main point in referring to this old text is simply to point out that in the stockmarket, as far as sentiment goes, there is nothing new.
As the stockmarket is a place where people interact everyday, basic human emotion is a very powerful force.
And the forces at the moment are firmly in the fear camp, ignoring rational, long-term arguments for buying shares.

Stockbroker Joseph Cardone is an experienced adviser and the Canberra branch manager for Patersons, “The Australian Stockbroker”. Any advice provided in this article is general in nature and should not be solely relied upon when making any individual investment decision.