stocksAdages about going against the grain and buying when blood is in the streets get plenty of lip service. But like many things, buying at the point of maximum pessimism is easier said than done for most investors.

For those truly willing to bet against the crowd, though, now may be as a good a time as any to buy stocks. Individual investors, who have a storied history of getting the market exactly wrong, have suddenly become as bearish on stocks as they were in the wake of the credit crisis.

But the sudden burst of pessimism seems out of line with broader economic developments that continue to be mixed, meaning that risky assets like stocks may be undervalued because investors are being overly conservative.

On Pace for Record Corporate Profits

The proportion of smaller investors with a bullish outlook on the stock market over the next six months tumbled to 21%, from 30% just the week prior, according to a recent survey by the American Association of Individual Investors.

That marks the lowest levels since when the credit crisis began easing in March, 2009 -- just 19% of retail investors had a bullish outlook then. Stocks posted a monster rally in the months following March, 2009, and the sentiment could hardly have been more misplaced.

And the current economic situation is undeniably far better now than it was during the last bout of such pessimism, which followed a synchronized global collapse that pummeled the world economy.

A tepid U.S. economic recovery that hardly dented unemployment is already showing troubling signs of weakening. But companies are on pace to earn record profits in the coming year, according to analyst estimates, in stark contrast to the record losses they faced during the credit crisis.

Growth Elsewhere May Boost the U.S.

Much of that growth can be chalked up to once-again roaring emerging markets in Asia and Latin America. Europe, meanwhile, was left for dead just months ago much as the U.S. economy is today.

But the Continent has posted a sharp bounce back that has silenced most skeptics. And in an increasingly interconnected world economy, positive developments elsewhere have a good chancing of buoying the U.S. as well.

Some markets, though, are behaving much as they were when the world economy was in the midst of a historic decline. Yields on conservative assets like U.S. Treasury bonds, for example, have been pushed to levels not seen since the credit crisis. Some hysterical analysts, meanwhile, are predicting that yields will approach the record lows seen around the Great Depression.

Stock Yields vs. Bond Yields

The mismatch between an uneven but stable global economy and massive amounts of investor pessimism can best be summed up in the relative expected real yields of stocks vs. government bonds.

In the U.S., stock yields -- a measure of expected earnings compared to share prices -- is at a staggering 8% while government bonds are yielding merely 1% when modest inflation expectations are taken into account, according to JP Morgan.

Individual investors' gloom is easy enough to understand. Job growth has been painfully absent even a year after the recession ended, according to most economists.

But much like in March, 2009, when pessimism was supreme, investors may be throwing in the towel on stocks at among the worst possible moments.

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ttownsend

Investors are waiting until deflation pushes prices down or investing in China.

August 30 2010 at 6:58 AM Report abuse rate up rate down Reply
teddy9463

anyone that invests hard earnd cash in this market, is an idiot.

August 30 2010 at 4:40 AM Report abuse +1 rate up rate down Reply
fixitright73

SELL SELL RUN LIKE HELL!!!!!!!!!!!!!!!!!!

August 29 2010 at 11:07 PM Report abuse +3 rate up rate down Reply
longanman

Gordon Gecko in Wall Street stated, ( Money is not lost or made it is simply transferred, I create nothing I own everything ). What we have here is a transfer of wealth from the middle class to the Big Corporations and Wall Street. It is inconceivable that the American taxpayer is being punished for the excesses of others. Folks there is something very wrong with this picture. Washington represents special interest and a foreign government and not the American people. Our system is broke. It is corrupt and needs to be changed. It is too cumbersome and unresponsive to the American people, and nobody in Washington is ever held accountable.

August 29 2010 at 10:36 PM Report abuse +6 rate up rate down Reply
tinmn52183

I'm all in. I like this market: + Corp balance sheets have never had more cash. Companies buying their own stock + M&A heating up again (e.g. HP, BHP, Google,etc) + Buffet reporting busiensses he owns which mirror US economy are improving. + The pace of trucking freight is up sharply. Our Fortune 500 Co unable to secure adequate freight.Readying for Gloom/Doomers to predict hyperinflation. + Record levels of stock market bearishness(e.g. 19% bullish sentiment). Luck to all. Tinmn

August 29 2010 at 9:01 PM Report abuse -3 rate up rate down Reply
Foltynski Family

The third to last paragraph has the all to well heard word EXPECTED. I can already see tomorrow's story, corporate earning's lower than EXPECTED. I dont believe this crap for a second.

August 29 2010 at 8:01 PM Report abuse +2 rate up rate down Reply
ingfp

Good night and God Bless everyone!

August 29 2010 at 7:18 PM Report abuse +3 rate up rate down Reply
1 reply to ingfp's comment
johnskii

ingfp: Good idea and we are still permittrd to say that at least for now. Same to you......

August 29 2010 at 7:23 PM Report abuse +2 rate up rate down Reply
crossrdsales

Does anybody really believe this idiot? The propaganda from Uncle Sam and the news media that's under their control has reached a point where the things they tell us actually insult our intelligence. I'll almost insulted by the stories they're now handing out as truth. Makes me think they believe we're pretty dumb which isn't saying much. Round #2 of Fed's QE is going to send the dollar sinking, the stock market on another artificial (temporary) run, and U.S. consumer into the abyss. Nice article Vishesh. Too bad you're not allowed to tell the truth and have to resort to dribble like this article. Alot of idiots just like you are going to take your advice and reinvest just when the sucker wagon comes by for another round of fleecing. BM Indy, IN

August 29 2010 at 7:09 PM Report abuse +7 rate up rate down Reply
2 replies to crossrdsales's comment
ingfp

Dead on it

August 29 2010 at 7:12 PM Report abuse +2 rate up rate down Reply
teddy9463

anyone that invests money in this market is an idiot, how right you are crossrdsales.

August 30 2010 at 4:38 AM Report abuse +1 rate up rate down Reply
imme534333

If you ignore the headlines and invest a regular portion of your income you will probable be better off then a person that spends all of their income

August 29 2010 at 7:04 PM Report abuse -2 rate up rate down Reply
2 replies to imme534333's comment
johnskii

Yes and lose it all again when the "BIG" guys suck it all out again......

August 29 2010 at 7:07 PM Report abuse +5 rate up rate down Reply
ingfp

Headlines are very inaccurate as history demonstrates. you should Only invest if you have a long time horizon and have the knowledge of where to invest and can stand the potential losses.

August 29 2010 at 7:10 PM Report abuse rate up rate down Reply
ingfp

The current business climate is very cold and will remain so until the last hope and change are gone. November will be a precursor for the future markets. Businesses are waiting on a GO SIGN, not the Obama Stop Sign. People who have businesses aren't growing and hiring because they don't know what the government is going to do next, pretty sad statement, I know. You can throw out all the financial investing methodology available because they all don't apply under a dictatorship such as the one we have to surf under now. We could have some stability returned to the markets or just keep slip slidin away under the foolishness we have now.

August 29 2010 at 7:03 PM Report abuse +5 rate up rate down Reply