The latest Investor’s Intelligence poll was released today, and it showed the highest Bull Ratio since December 2007.  During the prior bear market, such spikes in optimism among the newsletter writers preceded a market deccline every time but once (that exception marked the end of the bear market).

Most interesting is WHY people follow those writers, or anyone else for that matter.  It isn’t because they’re necessarily right more often than not.  In fact, when they engage in group-think, they’re wrong more often than not.

More likely is that they gain a following because they appear confident.  The New Scientist posted an article today which explains that experts who appear confident get taken more seriously than those who might have a more persuasive argument, but who stress the uncertainties in their forecasts.

This is part of the reason why those who are always bullish or always bearish maintain followers.  They can be wrong for extended periods of time, but they’re very confident in their outlook.

And it certainly explains the Cramer Phenomenon.  He’s about as good as flipping a coin, but he sure seems like he knows what he’s talking about (who could ever doubt someone with a sound-effects board?).  Next time your advisor appears cocky, you might want to take a look at some history before just handing him your money.

Source:

Humans Prefer Cockiness To Expertise

The New Scientist, June 10, 2009