The Dow Narrowly Misses Record Highs, but Are Investors Getting Greedy?

The Dow fell just short, but sentiment among investors has risen to alarming levels.

May 29, 2014 at 9:03PM

The Dow Jones Industrials (DJINDICES:^DJI) managed to regain all of yesterday's lost ground and then some, finishing up more than 65 points, and clawing to within reach of a new all-time closing record. Even though the Dow hasn't put together the huge gains this year that it did in 2013, it has nevertheless held up well even through challenges like a tough winter economy. Yet now, rising levels of investor confidence suggest that complacency might well be at dangerous levels, as the S&P Volatility Index (VOLATILITYINDICES:^VIX) remains at extremely low levels, and the iPath S&P 500 VIX Short-Term Futures ETN (NYSEMKT:VXX) hits yet another all-time record low. Are investors being greedy when they should be fearful?

Source: Carl Richards,

Looking at confidence
The latest survey results from the American Association of Individual Investors showed a huge surge of bullish sentiment following the ascent of the stock market during the past week. In just a single week, the number of bullish investors rose six percentage points, to 36.5%, while bearish investor counts fell by more than three percentage points. Although the number of neutral investors remains well above typical levels, the number of bears is almost a full quarter below the long-term historical average.

At first glance, the proportion of bullish investors might seem like a good reason to feel confident about the market. But sentiment indicators often run contrary to the actual direction of the market. For instance, in 2009 at the market's lows, investor sentiment was terrible. It took the ensuing recovery from those low levels to bring about gains in sentiment, and even years later, many investors still haven't invested in the Dow Jones Industrials or other stocks because of their fears of another market meltdown.

Meanwhile, the S&P Volatility Index has slipped to its lowest levels in years, falling nearly to 11 for the first time since 2007. Specifically, what the Volatility Index measures is the price that investors are willing to pay for protection from market movements using options strategies, and the lack of fear of a sizable correction appears to be driving the VIX lower and taking volatility-tracking products like iPath S&P 500 VIX ST Futures ETN down with it.

All told, the level of complacency on Wall Street is so high that it has to be troubling to contrarian investors. The problem, though, is that contrarians could have made the same case several times in recent years; yet the market has only pulled back slightly on all of those occasions. In the end, it appears that it will take a large and unforeseen catalyst to push the Dow Jones Industrials down into a full-fledged correction. Until that happens, greedy investors might well end up getting rewarded rather than punished.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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