'I Contrarian': Are These Six Stocks the Worst Possible Trades Today?

Includes: COW, JJG, KRE, SEA, UNG, XHB
by: Thomas MacLeod

Each day we set out to try and make money in the markets. Well... that's the theory! Actually we do quite well for ourselves but are always searching for ways to improve.

As would most, we use a variety of different trading techniques and research processes. To avoid becoming to comfortable in our ways, once a year we look at the markets from a radically different perspective. We've invented a game we call "I Contrarian". The idea is to approach the market from a very different perspective - instead of trying to create wealth, let's try and figure out the best way to lose our wealth. The aim of the game is to identify the worst possible trades that we can find, based upon fundamental, technical, and general commentator views. The one rule is that we must hold onto our positions for at least 18 months.

Caligula: Do you think I'm mad?

Claudius: Mad?

Caligula: Yes, sometimes I think that I'm going mad. Do you - be honest with me - has that thought ever crossed your mind?

Claudius: Never. Never. The idea is preposterous. You set the standard of sanity for the whole world.

I Claudius - BBC 1976

We've been doing this for almost 10 years now & frankly we've been astounded at our track record. Preposterous as it does seem, around 80% of our "I Contrarian" winners have turned into profitable trades.

These are the six winners of 2009:

  1. Natural Gas - via futures or UNG
  2. Lean Hogs - via futures or COW
  3. Grains - via futures or JJG
  4. Shipping Stocks - via SEA
  5. US Regional Banks and Short the S&P 500 - via KRE
  6. Homebuilder stocks and short the S&P 500 - via XHB

We have but two comments on the list above.

Firstly, with respect to Shipping stocks, considerable supply has been removed from the market and the building of new ships has slowed considerably. If global trade does pick up over the next 18 months there is the potential for quite a supply squeeze.

Secondly, these are all pure contrarian plays, based upon the contrarian mantra: "Sell on greed. Buy on fear". These are not trades for short-term profit, but for long-term buy and hold.

Due to the nature of the exercise we will probably find very little support for these trades amongst our betters. At the moment the technicals and fundamentals can only be described as a bit rank. So we are buying purely on our past performance and allocating a small amount of our long term funds to positions on each.

We encourage you to challenge the way you view the markets from time to time. Be creative, you never know what you will discover & the results may surprise you.

We'll leave you with a short quote from why the lucky stiff.

When you don't create things, you become defined by your tastes rather than ability. Your tastes only narrow & exclude people. So create.

Disclosure: Long UNG, KRE, XHB, SEA, COW, JJG