One of the major themes that retail investors seem to miss, but seasoned investors/traders understand, is that that market psychology almost always trumps fundamentals. In other words, your research can spit out the best stock, commodity, bond, etc., that the world has ever known, but if Wall Street thinks your research blows, then your no brainer investment is going one of two places — down or flatline.
(Hence the reason why fund managers pitch their best ideas to main stream media and other money managers so vehemently — usually after they’ve taken a major position supporting their thesis — because have a vested interest in changing the market’s perception of their latest trade/investment.)
This point is well illustrated by Mark Fisher, a seasoned trader, in this CNBC appearance:
Stocks are a measure of the rate of change in people’s perception. As long as the psychology is there, then stocks [this interview addresses gold as well as stocks] will continue to go up or down based on people’s fear, greed or anxiety.
[Fast forward to minute 4:18]
Conversely to buying anything on an up trend, if you were foolish enough to short a raging bull market when it’s only halfway to it’s apex (say the tech bubble in the late 90s or the real estate bubble in early 2000s when market psychology was incredibly positive), you were more than likely going to get pressured out of your position (unless you timed it right or played the derivatives market) because market psychology simply didn’t believe that the fundamentals were as atrocious as they were proven to be.
Thus, if more people than you believe something you don’t, or perhaps more correctly said, if people with more money than you can put more money to work against you, then even if you’re correct, you’re probably going to lose money if you try to bet against them. Especially if you’re trying to make money in the short term. (For the record, I define short term to equal 1 day to 5 years.)
An argument can definitely be made that contrarians made money by sticking to their guns and waiting it out over the long term, but there are few iconoclastic personalities that can hold out to this degree, especially when they’re bets are in the red for extended periods of time. That’s why main stream media puts investors who made notoriously unpopular calls, like shorting the housing bubble (e.g. Peter Schiff, Kyle Bass, etc.), on such a pedestal… because there are so few of them!
