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Permabulls vs. Permabears: How to Profit from Extreme Market Sentiments



Permabulls vs. Permabears: What They Are and How They Affect the Market

If you follow the financial news, you may have come across terms like permabulls and permabears. These are labels used to describe investors who have a persistent bullish or bearish outlook on the market, regardless of the actual conditions. In this post, we will explain what these terms mean, how they differ from normal bulls and bears, and what impact they have on the market.

What are permabulls and permabears?

Permabulls are investors who always expect the market to go up, no matter what. They tend to ignore or downplay any negative information or risks, and focus on the positive aspects of the economy, the companies, or the asset classes they invest in. They are optimistic about the future and believe that any downturn is temporary and will be followed by a strong recovery.

Permabears are the opposite of permabulls. They are investors who always expect the market to go down, no matter what. They tend to exaggerate or overemphasize any negative information or risks, and ignore or dismiss the positive aspects of the economy, the companies, or the asset classes they invest in. They are pessimistic about the future and believe that any uptrend is temporary and will be followed by a severe crash.

How do permabulls and permabears differ from normal bulls and bears?

Normal bulls and bears are investors who have a bullish or bearish outlook on the market based on rational analysis of the facts and evidence. They are flexible and willing to change their views when new information or events warrant it. They do not let their emotions or biases cloud their judgment. They also do not have a fixed time horizon for their predictions, and they adjust their expectations according to the changing market conditions.

Permabulls and permabears, on the other hand, are investors who have a bullish or bearish outlook on the market based on irrational beliefs or preferences. They are rigid and unwilling to change their views even when new information or events contradict them. They let their emotions or biases influence their judgment. They also have a fixed time horizon for their predictions, and they do not adjust their expectations according to the changing market conditions.

What impact do permabulls and permabears have on the market?

Permabulls and permabears can have a significant impact on the market, especially when they are influential or vocal. Their opinions can sway other investors’ sentiments and behaviors, creating feedback loops that amplify price movements. For example, if permabulls dominate the market, they can create a self-fulfilling prophecy of rising prices by buying more stocks, driving up demand and valuations. Conversely, if permabears dominate the market, they can create a self-fulfilling prophecy of falling prices by selling more stocks, driving down demand and valuations.

However, permabulls and permabears can also create opportunities for contrarian investors who take the opposite view of the market consensus. Contrarian investors can profit from exploiting the gaps between reality and expectations that permabulls and permabears create. For example, if permabulls push stock prices too high relative to their fundamentals, contrarian investors can sell them short and profit from their eventual decline. Conversely, if permabears push stock prices too low relative to their fundamentals, contrarian investors can buy them long and profit from their eventual rise.

Examples of permabulls and permabears

There are many examples of permabulls and permabears in history and in present times. Some of them are famous or notorious for their predictions, while others are less known but still influential. Here are some examples of each category:

  • Permabulls: Peter Lynch (legendary fund manager who advocated buying growth stocks), Jeremy Siegel (professor who argued that stocks always outperform bonds in the long run), Jim Cramer (TV host who is known for his bullish calls on individual stocks), Cathie Wood (fund manager who bets on disruptive technologies), Elon Musk (entrepreneur who promotes his own companies as well as cryptocurrencies).
  • Permabears: Robert Prechter (analyst who predicted a massive stock market crash based on Elliott Wave Theory), Marc Faber (investor who warned of impending doom in various asset classes), Nouriel Roubini (economist who foresaw the 2008 financial crisis), Peter Schiff (commentator who advocates gold as a hedge against inflation), Michael Burry (investor who bet against subprime mortgages).

Conclusion

Permabulls and permabears are investors who have a persistent bullish or bearish outlook on the market, regardless of the actual conditions. They differ from normal bulls and bears in that they base their views on irrational beliefs or preferences rather than rational analysis of facts and evidence. They can have a significant impact on the market by influencing other investors’ sentiments and behaviors, creating feedback loops that amplify price movements. However, they can also create opportunities for contrarian investors who take the opposite view of the market consensus and exploit the gaps between reality and expectations that permabulls and permabears create.

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