Does Contrarian Investing Actually Work?

Nov 16, 2022

The Beginnings of Contrarian Investing

When I first learned about the world of investments and investing, I studied the most famous family in investing internationally, The Rothschild Family and Empire. They unquestionably are the first family of investing, having basically invented this entire industry.

They were the big winners of the Napoleonic Wars, having helped finance both Napoleon with the French Army and Wellington with the English Army. In the end, they bet big for Wellington, who defeated Napoleon at Waterloo.

The Rothschild Family and Empire

The Rothschild Family and Empire

They had a famous phrase, “Always buy when the streets are running red”. What this means in today’s terms is, “Buy when the masses are selling, as more often than not, the masses are wrong.”

Do the “experts” have your best interests in mind?

This is what is happening today. The “experts” are telling the masses to sell their tech holdings as they will be down for some time. In other words, we should bet against the American Tech Sector. Yes, Facebook is down by 70% this year and many Tech Sector ETFs and Mutual Funds own Facebook. Yes, they are experiencing great negativity. Amazon is down by 38% and Netflix is down by 48%. For another example, the Semiconductor ETF, SOXX, is down 31% this year and SKYY, the Cloud Computing ETF, is down 40% this year. It’s very painful.

Contrarian investing means going against market trends.

I am not as bearish as many in the media. I just can’t sleep better at night going against the growth engine of the United States. No question that most of this year’s downturn, (not all of it) is because of this particular downturn. However, sometime next year we are going to have an upturn – and it will come quickly. Even with a recession coming, or even if we are in one now, this sector tends to be six to nine months in front of the economy. 

Stock market investing bear and bull

Short recession, long recession, or no recession. What gives?

Should we have a short recession, then tech will have a serious rebound. In a long recession, everything will suffer. So rather than looking like a “V” – which it has – it’s quite possible that this period will look like a “checkmark” ✔. Down seriously, and then up long-term even more seriously. We need to be in the proper position for this growth when it returns, and it will be before 2023 is over. To buffer this downturn, we have added some time ago Energy, Materials, and Commodities, all of which are having great years.

There’s more to come.

I am not 100% convinced that all of the pain is behind us. Even with the way the election turned out, most folks have very little confidence in the business of Washington, DC. We will continue to be volatile with many highs and lows, but we are putting portfolios in the winning position for the next three years. Patience, patience, and more patience will pay off in the next three to five years, albeit painful at times, with today being one of those times.

Call me anytime should this pain become too great, and we can make adjustments. You have to be able to sleep at night. As your dedicated financial advisor, I’m here for you. Call 925-314-8503 or email me anytime at elliot@prosperityfinancialgroup.com.

We look forward to hearing from you.

The best investment strategy for you is the one that allows you to sleep soundly at night. If you would like to readjust your portfolio or risk tolerance – contact me today.

All my best,

Elliot Kallen

925-314-8503

Elliot@ProsperityFinancialGroup.com

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