Do People Really Invest Based on Polls?

If you follow the business media sooner or later you will hear about some stock market sentiment surveys. These polls are usually developed by investment advisory companies or brokers. Investors are polled as to their view on the stock market - bull or bear or maybe correction coming. Some of them have been around for many years. There are also polls on national levels of consumer sentiment. The University of Michigan produces one such poll.

The investment idea is to survey current market opinion and then take a contrarian investment stance. For example, if the bullish reading was very high - say above some threshold like 85% you would open up your laptop (how do you open an ipad?) and trim down your portfolio. The 85% sentiment reading tells you folks have gone hog-wild in an asset bubble and you were smart enough to get out.

The whole thing sounds logical. Right? Unfortunately, while sounding attractive, the strategy does not work according to Meir Statman and Ken Fisher who published a research paper on this topic in 2003. Here is a link - Paper.

In my opinion it is silly to go out and buy/sell stocks based on some survey of random people. Should you invest in a business if the majority of folks are bullish (or bearish)? Investment polls are maybe fun to follow but they appear to be useless for trading or investing.