Be a Contrarian

One of the things I mentioned in our class is to look forward toward what the future is bringing and not in the rear-view mirror (like “past” investment performance). contrarian One set of indicators to look at are called “contrary” indicators. Contrary indicators are things that are actually the opposite of the consensus or majority. For example, back in 2006, when “everyone” was thinking housing prices “never decline”, it would be a contrary indicator that perhaps housing prices might start declining. Or back in March 2009, when “everyone” was pessimistic about the stock market and selling stocks in droves, being “contrary” would have been to be positive about stocks and buy! As Warren Buffet likes to say, “Be greedy when others are fearful, and fearful when others are greedy.”

One way sentiment is measured is through polls that are done with the public to find out if they are “bullish” and think the stock market will continue to rise, or “bearish” and think the stock market will fall. Currently, the sentiment is way over 60% bullish and has never been as high as right now, except 1987 when the stock market crashed! I mention that to flash a “caution” sign. It’s only one contrarian indicator, and shouldn’t be your only consideration to buy or sell, but it’s something to think about. When investors in the stock market get overconfident it’s going to continue to rise indefinitely, it usually surprises us with a pullback.

And, as the market goes up, that’s when we want to do some selling. When the stock market is down, that’s when we want to go shopping because stocks are on sale! Be cautious here as the market may be forming a top over the next few weeks or months, and use your time to make your shopping list of what stocks are leaders that you’d like to buy when they go on sale!

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