There is this puzzling phenomenon on financial social media: some permabear accounts have hundreds of thousands of followers. Below are a few thoughts that might provide some clues.
Since I joined Twitter (now X) in 2010, I have been a witness to the exponential growth in the following of some permabear accounts. These are accounts that, after the GFC and for more than 13 years, have been constantly predicting a collapse of the stock market. Some use macroeconomic analysis as the justification, and some even use simplistic technical analysis indicators.
As an example, in January 2017, based on a trivial chart pattern, during an interview on a major financial TV network, a permabear predicted the bull market was over. The S&P 500 index gained 21.7% that year. The Twitter account of that individual had less than 100K followers during that time. Now it has close to half a million! This is after a series of permabear calls, all invalidated after the stock market made new all-time highs.
I have found this phenomenon intriguing. Logic dictates that these people should have a low following. Why is their following increasing in a nearly exponential fashion? There are some explanations I can offer.
1. Many traders follow people with a bad forecasting record to fade their calls
As it turns out, some permabears have provided very profitable signals of bull market continuation. This may be one reason many traders follow them.
2. Inexperienced traders follow permabears due to hopes of quick riches
Timing a top can offer large gains and this is one reason many inexperienced traders follow permabears. Due to a lack of experience, they fall victim to the image these permabears portray for themselves as seasoned traders. However, as every experienced trader knows, timing tops is an extremely difficult and highly unprofitable endeavor.
3. Many follow them for entertainment purposes
Serious traders do not provide much entertainment other than thoughtful and boring analysis, which is often difficult for the crowd to follow. The permabears often provide entertainment to attract crowds. This is a marketing trick, and it works.
4. The mainstream financial media promotes them because it helps the bull case
This is highly speculative, but over the years I have noticed that the mainstream financial media likes to promote permabears. Maybe the reason is because the crowds are always bearish. Or, maybe, they know the market gains momentum by squeezing out short traders.
5. Most people hate the markets and would like them to crash
Many investors lost a lot of money in the two major bear markets, the dot-com and the one due to GFC. They have not invested in the markets since, and some are only trading short-term, trying to catch the next top to break even. I believe this is the majority of people who follow permabears. They make up the majority of accounts on financial social media. The markets betrayed them twice, forcing them to leave close to bear market lows out of fear of suffering further losses. Their revenge is following those permabears, and permabears know that and take advantage.
I would like to add that it is very concerning that some of those permabears have turned bulls lately.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
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