Contrarian investing near market tops

Monday, April 10, 2017|Investing for the Long Run|
  • Contrarian Investing Near Market Tops

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is.” —Warren Buffett, the Oracle of Omaha

Well, this is a pleasant surprise. Many stock market indices are hovering either at or near all time highs.

Successful investing near or at market tops is a skill worth having. Is it time to revisit your approach?

Most stock markets get their wings clipped periodically. Suddenly, interest in stocks has soared to lofty heights not seen before.

The question becomes “how does one invest in stocks now that most people are interested?” My view is that contrarian strategy delivers rewards in the long run.

Contrarian investors are very patient investors. They are not afraid to happily ‘zig’ when others want to ‘zag.’

Contrarians know that bulls and bears can swap chairs abruptly with little or no warning. Contrarians are content with either market direction.

Risk is ever present, however, placing emphasis on quality investments tames the turmoil. I highlight contrarian investing for both advancing and falling markets:

  • First step as stocks advance is to consider selling a small position of the winners.
  • Notice that I used “small” and “winners” in the same sentence.
  • If stock markets continue to advance, sell more small amounts of the winners.
  • When markets retreat, buy some quality investments that few are interested in.
  • If those pesky markets drop further, buy more small positions at lower prices.
  • Do make sure that you don’t need the money you invest for at least 5 to 10 years.
  • Having an established asset mix makes your investing easier.
  • Contrarian investing uses targets set in your game plan.

Why this approach makes sense:

  • You control the process of when to buy, sell and how much.
  • There is no need to outsmart the markets.
  • You become skilled at taking small profits.
  • Knee-jerk reactions are not necessary.
  • It is a counter intuitive strategy that works.
  • Everyone can implement it.

When stock prices climb, contrarians sell some. Conversely, when stock prices slide, contrarians buy some. Again, I emphasize “some” in both directions.

You don’t have to act every time the markets gyrate north or south. Having some ready cash on hand makes this process more seamless.

Contrarian investors are very patient investors. They are not afraid to happily zig when others want to zag.

That strategy takes some getting used to. A series of small steps helps establish your personal discipline.

About Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA  My expertise in the investment and financial advisory profession began in 1972. I graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971. I then attended the University of British Columbia, graduating with the MBA in 1972. I have attained the “Discretionary Portfolio Manager” professional designation. I am committed to offering clients the highest standard of personal service by providing prompt, courteous and professional attention. My advice is objective, unbiased and without conflicts of interest. I’m part of a team that delivers comprehensive services and best value in managing client wealth.

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