There is a surfeit of surveys these days. In part because the Internet allows pollsters to survey people cheaply and frequently. Focusing only on financial matters there are regular surveys of people’s opinions on the stock market, the state of the economy and future inflation. The question is do they provide us with incremental information not already included in market prices?
Paul Kedrosky at Infectious Greed for one doesn’t put much stock in opinion surveys:
I loathe most opinion surveys. Asking people what they think about things rarely leads anywhere useful, especially when the subject is technical and/or even remotely complicated.
In today’s WSJ there is an article by Jonathan Cheng examining the one of the long-standing opinion surveys the American Association of Individual Investors Sentiment Survey. It is most often used to gauge the opinion of retail investors, and as a contrarian indicator. Cheng writes:
What Mr. Springer and few on Wall Street know is that the survey’s sample size is typically so small, and its methodology so fraught with holes, as to render it statistically worthless.
The article quotes a statistician who says that the AAII survey is “pretty much useless” in light of the self-selection of those who respond and the surprisingly small number (200-300 per week) who actually participate in the poll. That being said the survey has a long track record and is relied upon by a number of respected analysts. However even the keeper of the poll recognizes the limitation of the survey:
You still have to look at several market indicators and not just look at ours as the sole thing you’re looking at,” Mr. Rotblut said. “Sometimes with consumer-confidence surveys, they say they’re worried about the economy, but then they go and buy a flat-screen TV.
Where does that leave investors? There is no shortage of sentiment indicators not derived from surveys. A quick peek at a site like SentimenTrader.com can give you an indication of the breadth of sentiment indicators out there. For instance, just today we can see how Rydex asset flows or the TRIN index can be used as sentiment indicators. Both of which are derived from actual market activity. That being said, the application of sentiment indicators is tricky because they are notorious for working, until they don’t.
In the end what matters is what people do, not what they say. The beauty of the market is that it already incorporates the opinions of millions of participants. In the long run, fundamental value matters. In the short and intermediate term, only price pays. In neither case do opinions, absent money on the line, matter.