Trading on One-Sided Investor Sentiment
There have been academic studies that show investors tend to place too much importance on recent information, also known as psychological anchoring.
During periods of negative news, investors may continue to sell a stock, pushing it below its fair value. Conversely, during periods of positive news, investors may get overly optimistic and push the stock beyond fair value.
This is the goal of Contextuall: to identify examples where herd behavior has reached extreme levels.
We believe that, by identifying these areas of one-sided sentiment, investors could use these contrarian signals as a starting point for their own research.
Media Sentiment on DryShips, Inc. (DRYS), Compared to Other Companies in the Shipping Industry
33.75% of headlines have been classified as Negative, vs. an industry average of 14.15%.
Considering our note on investor herd behavior, is this extreme negativity a contrarian signal? With investors running for the exit, is this the time to buy?
What do you think? Let us know in the comment section.