Throughout the financial crisis, Wall Street has taken a huge share of the blame for toxic assets, plunging markets, and the host of other problems that the world economy now faces. Yet at least for the moment, those same financial professionals seem to believe that we may have gotten through the worst of the bad news.

According to a survey of active mutual fund managers, manager sentiment rose briefly to its highest levels in nearly a year during late March. And while that positive sentiment has fallen back in subsequent weeks, it's still above typical sentiment levels since the brunt of the crisis began last July.

Does this improvement mean you should jump into the market right now? Or will Wall Street get it wrong again? Let's take a closer look at the numbers to gauge how well these pros have done in the past.

A historical look
During early March, sentiment fell to nearly unprecedented levels, indicating that most managers were sitting on cash. That certainly made sense, given the big declines in the stock market throughout February and the first week of March.

Yet as so often happens with market timers, active managers apparently missed much of the move up from March's lows. From a low of 2.15 (on a theoretical scale from -200 to 200), it took three weeks for sentiment levels to rise above 10 to their short-term high of 47.75. That indicated a massive shift from an all-cash position to a substantial bullish holding of stocks.

Unfortunately, missing out on those three weeks cost managers plenty, as stocks rebounded strongly. Here's just a sample:


Price on March 4

Price on March 25

3-Week Return

Bank of America (NYSE:BAC)




Wells Fargo (NYSE:WFC)




Harley-Davidson (NYSE:HOG)




Ford (NYSE:F)




Whole Foods Market (NASDAQ:WFMI)




Source: Motley Fool CAPS.

In fact, it's hard to find a losing stock over that same period. Just 33 components of the S&P 500 lost value, with most of them, like GameStop (NYSE:GME) and General Mills (NYSE:GIS), losing just a few percent of their value.

The value of sentiment
Using investor sentiment to gauge whether it's a smart time to buy stocks is a dicey proposition. In fact, many investors use sentiment as a contrary indicator -- betting that when most people think the market is likely to rise, it'll more often do exactly the opposite and fall, or vice versa.

Because this particular survey on active manager sentiment only goes back to 2006, it's tough to draw any real conclusions on the predictive value of the measure. However, there are a few interesting points:

  • The pros were fairly bullish throughout 2007, although the results fell off dramatically during the second half of the year -- well before the market topped out.
  • Like many investors, active managers got positive during mid-2008, after investors believed the Bear Stearns debacle might represent the market bottom. Only in June and July did managers change their minds.
  • Managers weren't convinced that the November lows would hold, and they turned out to be right.

That's not a perfect track record, but it's not a perfectly bad one either. Still, the fact that the survey focuses on active fund managers limits its usefulness for most investors.

What really matters
The problem with this survey is that active fund managers aren't necessarily a relevant measure for long-term investors who are less concerned with short-term fluctuations in the markets. The volatility of the survey results shows just how flexible these managers are with their investment decisions, moving from strong bullish sentiment to all-cash defensiveness in just a matter of weeks. You won't want to mimic that kind of volatile trading in your portfolio.

In the end, whether the pros make the right short-term call this time around won't have a major impact on your investing results. The more important question is whether you own stocks that will serve you well over the long run. As long as you use a sound investing strategy, you'll put yourself in a better position than pros who have to earn their keep with good results each and every month.

For more on finding the best values in the market, read about:

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Fool contributor Dan Caplinger rarely pays attention to Wall Street pros. He doesn't own shares of the companies mentioned. GameStop and Whole Foods Market are Motley Fool Stock Advisor selections. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy went pro and never looked back.