How to measure investor sentiment

Investor sentiment is a vital indicator - it can signal a turning point in the markets. And having the knowledge to turn before the tide can pay dividends. Here, Tim Bennett gives three tips for gauging the mood of investors.

Investors act in herds. There is a perceived safety in large numbers. So when everyone was buying technology stocks in the late 1990s, anyone left out was tempted to pile in too after all, could so many other people really be wrong? It works the other way too. After Lehman Brothers collapsed in 2008, many investors, who had held their stocks through all the uncertainty up until then, watched markets plunge and dumped their stocks in a panic.

In short, we are all driven as much by greed and fear as we are by any rational assessment of when we should buy and sell. That's why sentiment is a vital investment indicator. When investors are too gloomy or too cheerful, it often signals a turning point in the markets. But how do you measure investor sentiment?

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.