Tuesday, 19th December 2017
No curmudgeons at this end of the stick….
Readers occasionally crank-up the old email machine and write in to ask when I’m planning on feeling positive about something….
The honest answer is that you’re most likely to find me at my most positive when everybody else is feeling distinctly negative….
And there is no way of knowing when those times might come to pass. We simply sit tight and wait patiently for them to come along….
- Contrarian instincts….
It’s not that I’m a gloomy old curmudgeon who takes pleasure in being stubborn or recalcitrant. It isn’t that I like to cast myself as a harbinger of doom….
When the consensus view is one of unbridled exuberance, my enthusiasm naturally dims. When the market is depressed, my natural inclination is to look around and identify reasons to be cheerful.
When the majority feels fearful, I am on the hunt for opportunity. When the market is calm and complacent and feeling like nothing can possibly go wrong, that’s when I start to worry and feel scared.
When everybody wants to buy, my mind inevitably turns to selling. When others are selling, I start to think about buying….
Whatever the consensus view happens to be, it is my natural bent to stand on the other side of the fence – just to see what things look like from that side of the divide….
- Standing back and pausing for thought….
Of course, being an effective contrarian is not just about thinking or doing the opposite of the market as if I were operating on auto-pilot….
It’s more about trying to take a step back from the action, pausing for thought and making efforts to determine if or when the market is behaving without reason….
Sometimes markets think and act irrationally – with everybody simply swept along by the swell having given little or no thought to why they are acting as they are….
History is littered with instances when the market’s exuberance got the better of it. And it can be useful to identify such scenarios whilst they are unfolding. It is too late once the narrative has played out.
Playing the contrarian and recognizing such situations can present excellent investment opportunities. On the flip side of the coin, it can save you a lot of money and heartache….
- Crazy time….
Look at the Dutch tulip bulb craze in the 17th century, for example.
Thousands of people paid absurdly exorbitant prices for ‘exotic’ tulip bulbs that were, at the end of the day, ordinary horticultural commodities.
It is inconceivable today that the humble tulip bulb – something you stick in the soil in the first weeks of October for an early season (and admittedly beautiful) bloom – could be the subject of such frenzied speculative activity.
But back then the market was caught up in the grip of irrationality. Some people mortgaged property to get in on the buying. Others sold land. Others got themselves into mountains of debt….
Most did it because everybody else was doing it and they were frightened of missing out on the gains in a rising market that seemed, at the time, like it would go on forever….
Of course, it didn’t. People recovered their senses. The stampede ran out of steam.
Tulip bulbs swiftly fell back to their real value of a few pennies apiece. The speculators were hung out to dry – many suffering irreversible financial losses and others ruined completely….
- Sounding warnings….
Contrarians like me buy into the idea that what seems most unlikely to happen next is that which is most likely to happen….
It is not always a popular stance to adopt. People caught up in the consensus view often don’t want to hear it. They want their own beliefs and opinions confirmed rather than questioned….
And when your contrarian prognostications of doom don’t instantly materialize and become a reality, some like to take hold of this apparent ‘failure’ and use it as a stick to beat you with….
I understand and accept that. As a contrarian you develop a thick skin – by dint of necessity….
At the height of tulip mania, I imagine there were plenty of sticks and brickbats thrown at commentators who questioned the sense of paying what amounted to the value of a river-front house in Amsterdam for a bulb that wasn’t even guaranteed to survive the winter and flower….
Of course, those contrarian commentators were not attempting to call the top of the market. Nor were they trying to discourage speculators from banking gains from subsequent increases in the price of tulips….
Those contrarian commentators were merely sounding a warning and urging caution in an environment that appeared to them completely irrational and increasingly dangerous to allocated capital….
- Words of caution….
And so it is with the Money Truths column….
This last few months, I have been focused on offering contrarian words of caution related to two areas where I believe elements of irrationality are at work….
- Current UK stock market prices are entirely disconnected from economic reality and are overdue correction….
- Bitcoin has enjoyed unprecedented gains this year, but it remains volatile and it should be noted that gains have largely been driven by speculative activity. It has risen in value quickly. But don’t discount the possibility that the price could crash even faster….
My words of caution should not be confused with investment advice. I am not striving to keep you out of the market. I am not trying to discourage you from buying into bitcoin if that is what you wish to do….
I am not qualified or regulated to give you direct investment advice. And I wouldn’t do so even if I were. I don’t know who you are. I don’t know your circumstances. I don’t have any idea about your specific objectives. And I am completely unaware of your profile as an investor….
In the absence of that key contextual detail, it is impossible to advise. There is no one-size-fits-all piece of advice that serves all in equal measure….
- The objective….
Here at Money Truths we simply seek to serve by bringing you our version of the truth as we see it – without prejudice and without ulterior motive….
We hope that in some small way our insights and observations – always from a contrarian perspective – add something useful to the wider body of knowledge from which you form your own view and make your own decisions. No more. No less.
If sometimes I seem overly-gloomy, that is only a natural contrarian counter-balance to the fact that I believe the market is overly-exuberant. The wider climate dictates the tone.
And any gloom should not be attributed to my personal disposition. I make a point of always writing with a smile on my face – and sometimes with my tongue fixed firmly in my cheek.
And I should advise you that this morning I am writing to you wearing a Santa hat. That’s the way I roll. There are no curmudgeons here. Only contrarians….
- First-up next year….
I’ll be back in your inbox in 2018. And we’ll get the New Year started with a huge hit of positivity….
Next time out, I’ll tell you about a couple of things I’m feeling very POSITIVE about right now – areas where I believe the next wave of long-term investor profits will be made. Be sure to tune in.
For now, I’d like to thank you for reading Money Truths this year. And I’d like to wish you and yours a very merry Christmas. I’ll catch up with you in January.
All the best,