In the latest case study of what not to do with your portfolio, Wall Street consensus has once again violated a basic principle of investing: Don't buy high and sell lower. Recent data on Wall Street consensus positioning shows that big banks and hedge funds bought the S&P 500 at the all-time highs then dumped them on last week's pullback.
As the cracks began to show in the GOP's healthcare bill last week, antsy investors sold stocks. After a vote on the bill was officially pulled on Friday, the S&P 500 finished the week down -1.4%. It marked the second down week for the broader stock market in the last nine. The -1.4% tumble represents roughly two-thirds of the -2.2% decline from the early March all-time highs.
What Not To Do: Buy High, Sell Low
The Chart of the Day below from today's Early Look shows consensus positioning for the largest institutional investors tracked by the CFTC, via futures and options contracts. As you can see...
- The S&P 500 net long position dropped by -65,502 contracts last week
- The Russell 2000 net short position got shorter by -18,000 contracts to -40,760 last week
In other words, investors chased the all-time highs and then freaked out on the modest selloff, dumping stocks.
Bottom Line
Aside from commonsense investing basics like not buying high and selling lower, there's a kernel of wisdom to be gleaned from this data. There's money to be made in forging your own path and not blindly following the consensus herd.
On that front, we think investors aren’t bullish enough. Our 40+ analysts covering 193 different stocks can help.
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