Individual traders who call a bottom are generally wrong
July 15, 2008
One of the blogs I follow is The Financial Philosopher. He doesn’t post as frequently as many others, but when he does it usually is worth reading. His post yesterday, Delusion, ‘Non-Bottom Callers’ & The Afflictions of the Investor’s Mind, definitely falls into that category. In it he talks about how it’s just as foolish to say we aren’t going to see a bottom as it is to be a bottom caller. I totally agree.
Along the lines of the bottom callers, last week’s Commitment of Traders report blows my mind. In the mini S&P 500 futures the small speculator group – which basically includes most individual traders – was 70% long as of last Tuesday’s data. Are you kidding me? That’s the highest reading I think I’ve seen in the last year. That’s a perfect example of how the individual trader so often gets it completely wrong. In this case it has to be largely a function of traders thinking a bottom had been put it. Yikes!
Lesson of the day: When most people are doing one thing, and you know that most traders lose money, it’s probably best to be thinking about being biased the other way.
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