Here’s an example of a disingenuous use of a picture. The chart shows the S & P 500 index and the weekly readings of the American Association of Individual Investors–participants who classify themselves as bullish divided by those who classify themselves as bearish. The chart is clearly bearish for stocks, as it shows that investors in the survey are at their most bullish . . . in a year. The implications are clear. Investors are very bullish–and we condescendingly call these investors the dumb money–and past levels of bullishness like this haven’t worked out well. Sell your stocks!
But wait a minute. Let’s take a look at the same chart going back two years. Here it is.
This chart also tells us that spikes in bullishness should have us selling stocks, but it also tells us that bullishness could increase a lot more, another 33% more, before we should think about hitting the panic button. In fact, investor psyches have been beaten down so much that we might even be able to tolerate a little excess exuberance; in other words, we might expect the enthusiasm to go even a little farther before we run into trouble.