Fear The Fear and Greed Index

Fear The Fear and Greed Index

Summary

The CNN Greed and Fear Index is not a useful investment tool.

Going back to mid-2010, a strategy to buy-and-hold the S&P 500 would have returned 95%. A sell-on-greed strategy would have returned only 50%- or less.

During a bull market in equities, as with precious metals, it pays to stay invested.

The CNN Greed and Fear Index┬áis an indicator compiled by CNN whose objective is to measure investors’ appetite for risk. The index can oscillate between 0 and 100. It rarely reaches extreme levels over 80 or above 20. Recently it has traded over 80, even hitting 90 Wednesday. Does this mean it’s time to sell?

I tried to find an answer by looking at GFI data back to mid-2010, which was the furthest back I could find readily accessible information. I created a couple of buy-sell criteria to assess how useful the GFI is. The result was unequivocal: when greed is high, the only thing to sell is the GFI. Hold on to your stocks!

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