19 April 2011

The Much Abused Spirit of Contrarianism

Should one seek the most despised trade, the least loved asset, and buy it in the spirit of Contrarianism? Act ways uncommon in princple of simply not following the herd?

How about--
A nice parcel of land around Fukushima?

Units in Madoff's ponzi scheme?

Condos in Chernobyl or Love Canal?

Marrying the obviously wrong man or woman simply because they are available?

Founding a chapter of the Flat Earth Society?

Sometimes things are not so desirable as decisions or investments within the  universe of possible choices because they really, truly, suck out loud, and it is going to take a serious effort to change them and their value equation.

Being a contrarian means seeing value through analysis where the crowd does not yet see it. It does not mean simply and somewhat randomly doing goofy things, self-nominating for the Darwin Awards and winning because there are so few other entrants.

The dollar trend seems pretty clear right now. Some day it will rally, and be a great investment, as most things never going straight down forever. But timing and risk management in investing is not the only thing, it is everything.

Any fool can sell a rising item because it is rising, or buy a falling one simply because it is falling, and they often do. And they may be right often enough to become addicted to being a clever one, better than the rest so they fancy, rather 'special.'

But they tend to go broke over time, reduced to heckling from the sidelines, making 'calls,' writing their wins in marble and their losses in sand, delusional to the end.

Bon mot du jour:
Q. What do they call a trader who constantly bets against the trend just to be different?

A. Oh Waiter!

Most successful contrarians are operating on asymmetrical information, sometimes the legitimate result of hard work, but too often not these days, which makes the short term trade especially difficult for the rest.

God gave you a brain.  Get to know it. It can be your best friend given time and circumstance. It seems to warn us when something looks dodgy, if we will but listen to it.

And then there is that other indispensable companion, your conscience...