Contrarian Investor

I am a contrarian investor by nature. I believe my skepticism is a major reason I have been a successful investor. I’m always asking “What can go wrong?” This is particularly true when stock or bond valuations are high. Most investors allow the culture or crowd to affect their emotions and cause them to make buy and sell decisions at precisely the wrong time. They get caught up in a Cycle of Market Emotions that is destructive to growing their portfolio and achieving their goals.

I have been 25-35% net long stocks for months; warning my subscribers that stocks were too expensive and risks too high for the returns being offered.  Our risk adverse position has resulted in the AAAMP outperforming the S&P 500 by 14 percentage points in the 3^rd quarter of 2011.

Contrarian Thinking

Now, 4 months into the bear market, it’s time to start asking “What could send the Stock Market higher?” The media and culture are full of reasons why you should not own stocks. Everyone knows the economy is soft, unemployment is high, Europe is imploding, Congress is gridlocked, and the President doesn’t have a clue on how business and the economy operate. These are some of the reasons the market is much lower today than 4 months ago.

What if the “super” committee actually got scared and offered a grand compromise with sweeping tax reform and deficit reduction?  What if President Obama, realizing his re-election was in jeopardy, did what Clinton did in 1995 and agreed to sign a major deficit reduction compromise bill? What if Europe was able to put together a bank bailout to solve their problems? What if the economy started growing and producing a few jobs? What if none of the above happened but the market began discounting a Republican President, House, and Senate in 2013?

These are all hypothetical long shots. Have I increased my allocation to equities?  Just a little; but it’s definitely time to start asking “What could go right?”  If you have a conservative asset allocation now, you don’t have to be in any rush, or make decisions with your emotions.  Do your homework and be ready to buy when others are participating in panic selling.

I already have my stock buy list of companies I want to buy at lower prices for the AAAMP. It’s time to start ignoring the negative chatter which is always the loudest and scariest at the bottom. Start thinking differently than others; be a contrarian investor.

The next time the market takes a big dive are you going to be buying or selling stocks?