Recently, I have been seeing a lot of negative headlines and reading a lot of pessimistic commentaries about the market. A consensus opinion seems to have emerged that, either due to geopolitical uncertainty or because the market has been rising for so long, we are "overdue" for some sort of pullback. This echoes in the questions that I've been getting from many of my clients. One of them recently wrote to me with these fears on his mind.
Dear G,
Thank you again for your message yesterday. Just wanted to double back on a key point in your email: that there appears to be strong negative sentiment and a building consensus of a market decline in the short term, and if there is consensus then what we should do about it. Is there predictive power in a popular pessimistic perspective?
Sentiment is a tough thing to measure in real time, and anecdotal data may be just as reliable in measuring it as endlessly revised and contorted hard data. A quick survey of market headlines online or at the newsstand reveals quite a lot of anxiety about the state of the economy and political affairs and not a lot of greed/fear of missing out.
If there is any one thing about investing that I would carve into stone for future generations, it is how emotions influence risk and prices.
Where do you think that we are right now on this line? Prices have been rising, so we can't be in the middle of the curve. We are definitely not "excited" or "elated" and I think only a small number of people today approach optimism. "Panic" seems too strong. I think that we are somewhere between "panic" and "relieved" and that we have been there for some time, which unscientifically suggests that we have some room to run. Big crashes do not occur from the valley of panic, but from the peak of elation.
It is worth spending a moment on Elation, which is much more than just strong optimism. Perhaps better labels would be "euphoria" or "irrational exuberance". It is a moment where even risk-averse investors with conservative perspectives start to think "I have made a mistake, and I am missing out. I need to adjust my investing style so that I don't continue to miss out and hopefully I catch up." This moment of capitulation from fear into greed is what defines the peak.
Here is what those peaks look like:
From the cover article: "Can't program a computer? Not techno savvy? Not a problem. If you've got a hot Internet business idea, Silicon Valley's astonishing start-up machine will do the rest."ii Investing is so easy!
The timing of this issue could not have been worse, literally a month before the crash. It seems insane looking back, but it probably made a lot of sense then.
This cover is from June 2005. Is this how people feel about real estate in fall 2025?
"Magazines are great if you want to know what everyone was wrong about last month. I stick to books."
Nobody is totally immune to the siren song of prevailing sentiment. Consider Harry S Dent Jr, an accomplished fund manager, prolific author, founder of HS Dent Investment Management in Tampa, and one of my favorite punching bags. He has been writing about investing and the market for almost as long as I have been alive, but in the mid-nineties through just a few years ago, he tried his hand at forecasting the future. These are the titles of his forecasting books and when they were published:
- Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage (2017)
- The Sale of a Lifetime: How the Great Bubble Bust of 2017 Can Make You Rich (2016)
- The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019 (2014)
- The Great Crash Ahead (2011)
- The Great Depression Ahead (2009)
- The Next Great Bubble Boom (2006)
- The Roaring 2000s Investor (1999)
- The Roaring 2000s (1998)
Here is when these titles were released, and what the market then did:
In his book, Zero Hour, Dent wrote: "Gold WILL NOT protect you from what's about to happen. In fact, my research points to gold collapsing to $700 per ounce… and potentially falling all the way down to $450 per ounce."vi Zero Hour was released on November 14, 2017 when gold was $1275/oz.
The unfortunate timing of these releases has caused Harry Dent Jr to be 180 degrees wrong for almost three consecutive decades, a nearly impossible feat if we were trying! His books came from and contributed to the milieu of the moment, reinforcing the herd optimism or pessimism. Although the narrative was compelling at the time of publishing, a reader following the prescriptions in these books would have gotten in before every crash and out before every boom and likely would have been financially destroyed. Even still, one can see how timely and plausible each of these titles was at the time they hit the shelves. That is the problem.
Dent has not written much since 2023 (when he predicted on X that 2024 would bring the biggest crash of his lifetime), which is too bad or else we might know what to do: the exact opposite of what he recommends!
A Nervous Herd Is Bullish
I won't go into how long-term performance is blind to or even benefits from short term declines, as we have covered that elsewhere. Today, I wanted to focus on the idea that consensus or popular sentiment can give us actionable insight into the future. History shows that if this is true at all, it might be truer in the opposite direction, as a contrarian indicator. A widespread feeling of pessimism and anxiety, such as what I think we see today, is not usually prologue to a major decline (although by virtue of our strategy, we are prepared to be wrong. We do not know when it is going to happen, but we know that a decline is going to happen at some point, and we plan accordingly). Instead, those life-altering declines are often driven by greed, elated thinking, and FOMO.
This is not, I repeat: NOT about market timing. I don't believe we can predict the short-term future with enough precision or consistency to profit (unless Harry Dent publishes another book. Then maybe). What I'm saying is that market crashes are more often preceded by a herd of bulls than a herd of bears. Consensus should always invite skepticism and the stronger the consensus, the more skeptical we should be. In my experience, this mindset has consistently translated into a meaningful advantage for investors. Often, a nervous herd is bullish.
For me, personally, the key is second order thinking: if a lot of people feel that the market is going to do ABC, then how are they likely to behave? What opportunities might that sentiment create that we can exploit? Most importantly, what impact – if any – are the sentiments of this moment likely to have on the successful outcomes of our long-term strategy? These are the questions that I ask myself, and how I think about my clients' plans and portfolios every day.
Best regards,
Frank Hujsa, CFP®, CLU®, CEPA®
Partner, Acadium Financial Partners
27499 Riverview Center Blvd, Suite 108
Bonita Springs, FL 34134
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i www.papermags.com
ii https://investingcaffeine.com/tag/getrich-com/
iii https://investingcaffeine.com/tag/getrich-com/
iv https://www.businessinsider.com/headline-magazine-cover-risk-nonsense-2014-10#were-we-in-a-bubblesure- this-ones-from-2005-28
v https://fred.stlouisfed.org/series/SP500 and www.amazon.com
vi Harry S Dent Jr, Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History To Your Advantage. 2017.