Great idea for a thread. I am excited about this one, and hopefully your friend IMPRISTINE found something better to do, or even better posts something constructive.
What would qualify as contrarian today? I look at that question this way: "What is the opposite of conventional wisdom? What does NOBODY believe."
1. Everybody thinks interest rates are going lower even though they are already at the lowest levels in a generation. So the contrarian play is that inflation is about to perk up again. At below 5% unemployment, its not that big a stretch. That would tell you to load up on mining and gold stocks and short bonds.
2. The market is going to break well below 7000. While this is not as contrarian as it was at Dow 9000, when I acted on it (well documented in real time on the Value Investing thread), the vast majority of investors consider Dow 5500 inconceivable. The argument is surprisingly easy to make. If you believe this, what you do is obvious.
3. Asia and Latin America are going to stabilize in the near term. In that case, take a look at APF and the Brazil Fund, two closed ends at 20-30% discounts, pure plays on the regions.
Other possible contrarian plays:
1. Short the U.S. and load up on Japan.
2. Cyclicals have just suffered their worst summer relative to the market in history. Conventional wisdom is that we are going into a recession. Many cyclicals in the technology, machinery and mining sector are trading at recession multiples now, and as far as I know, the U.S. economy is not in a recession. This one would tell you to buy CAT, CYM, PD, SEG, KMT among many others.
I am not arguing that you want to act on any of these, although I own a few of them. I am just trying to outline what "contrarian" means to me. It is not the same as value investing. It is as much psychology as economics. First identify notions of conventional wisdom which are virtually uncontested. Then investigate the fundamentals and valuations to see whether there might be a reason to go the other way. In this post I have done the identification step from my perspective (I am an institutional investor in regular contact with all the Wall Street buzz, so I hear conventional wisdom every time I answer my phone.) The second part is much more difficult, and that is what we should be talking about here.
Respectfully,
JJC |
