The contrarian approach to investing and to economic forecasting is well known and, by veterans of markets, well respected. For a variety of reasons, the herd ALMOST unfailingly gets it dead wrong. Moreover, the herd is not merely the herd of ordinary investors, ordinary newspaper and internet readers, ordinary TV news and stock market show watchers. The herd is also the great bulk of the PROFESSIONAL INVESTMENT COMMUNITY. For anyone who doubts the truth of this contention, we suggest you consult the performance records of professional fund managers over the past 18 months.
Because the herd is ALMOST invariably wrong, the contrary approach generally, though with exceptions, works well. Certainly, AVOIDING participating in herd movements can save the investor from financial catastrophe -- the recent bear market, and the recent (18-month) spate of absurdly over-optimistic economic forecasts by the Federal Reserve and by the generality of non-government economists, being cases in point. (The real estate mania and the tek bubble being additional, and fairly recent, cases in point).
Now it is analytically easy to advise a contrarian approach: it is correspondingly difficult to actually behave in a contrarian manner. The pull of the herd, and the seemingly endless drumbeat of uniform media opinion -- actually Wall Street "wisdom" as fed to the media -- are very difficult to resist.
Today, there is an overwhelming tidal wave of volume that the economy has passed its worst, and that better days are ahead. Ditto the stock market and lower quality bonds.
Without entering into any substantive debate, or seeking to counter the overwhelming pressure of the herd, both informed and uninformed, a contrarian would simply reason: since the consensus is overwhelmingly that the worst is passed, then probably THE WORST IS YET TO COME.
Since we are inclined to the contrarian approach, this is our conclusion.
Moneysage 2009 - copyright
