"Bad news doesn't matter until stocks turn down."

What does it meant to be a truly contrarian investor? Buy when people are selling, sell when people are buying? It seems logical that if there is good economic news than the market should react positively, and if there is bad news it would react negatively. But why isn't this happening? The answer for this has to do with investor sentiment, and more specifically the herding effect. Simon Maierhofer from the etf guide explains this in one sentence: "If it's too apparent, it's apparently wrong." He goes on, "bad news doesn't matter until stocks turn down...The logical conclusion is that news feeds on itself. Good news usually climaxes towards the market top, while bad news reaches its crescendo at a market bottom." So what is it that causes market swings? Change in fundamentals. "The easiest, yet most effective measures of valuation are P/E ratios and dividend yields. These measures have been reset to fair valuation levels every time the market has found a true bottom." According to Simon, "the market is grossly overvalued still. Current investor optimism - the herding effect - clearly points towards a major market top to be reached sooner, rather than later. "

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