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  • A Case for Contrarian Investing 1 comment
    May 11, 2009 3:29 AM


    Before I begin, I’d like to highlight that while I have been a long time reader on Seeking Alpha, this is actually my first time contributing. Over a long period of arduous contemplation, I ultimately decided it would be fitting to make a case for my style of investing with my first submission. So, that being said, please be gentle. (Just kidding, bring it on! I didn’t come here to make friends!) 
    According to Merriam-Webster’s Dictionary, a contrarian is “a person who takes a contrary position or attitude; specifically: an investor who buys shares of stock when most others are selling and sells when others are buying.”  Contrarians don’t like to follow the herd. We think independently, we research our positions, and we form our own conclusions - regardless of whether or not it’s popular. A lot of people would say this last sentence describes their style as well, but understand that “contrarian” is a relative term - the thoughts and opinions of everyone else will decide whether or not you are a contrarian, not you. So - as of right now, I am calling myself a contrarian investor because popular opinion happens to disagree with my own conclusions. Popular opinion would lead you to believe that the U.S. economy is going to endure this pesky recession for the greater part of 2009, at which point we are going to begin seeing more green shoots that indicate an inevitable turnaround. After all, isn’t the United States the greatest economic power in the world? And with Ben Bernanke, a supposed brilliant student of the Great Depression, in charge, shouldn’t the Fed have the captain they need to steer our economy back onto the right path? If you answered “yes” to the questions above, perhaps you are asking the wrong questions.
    Let’s face it: the United States is not the same country it’s always been. This country was once the greatest creditor nation in the world, which over time made a complete 180 to become the greatest borrower nation in the history of mankind. We used to have a large manufacturing base, which at present is dwarfed by a bloated and unsustainable service sector economy. Our currency used to be backed by gold, and Federal Reserve Notes formerly implemented the word “note” properly in their definition: a promise to pay. There once was a time in this country when the single head of a household earned enough income to support his/her entire family. At present, most households earn a dual income, and yet often it is still not enough to keep pace with rising living costs. Social Security and Medicare remain enormous unfunded liabilities, yet the government seems incapable of restraining spending or curtailing benefits in spite of this looming problem. For many, these are disappointing facts (among many) which they have heard before, and over time they have come to accept them as serious problems. For others, they have heard these facts and have decided they are not problems, or are in some state of perpetual denial about reality. It’s far easier to pretend they don’t exist, but as investors we are trying to anticipate future trends in order to positions ourselves for gains. If you can’t take the heat, get out of the kitchen, and if you can’t accept that the United States is deeply in trouble, you should give your money to a nice smiley-faced money manager. You should not try to “seek alpha” because the only thing you are seeking in reality is a fairy tale bedtime story that will help you sleep better at night. So would that make me the boogeyman?
    To wrap up this piece, I thought it would be fitting to remind everyone that being a contrarian is no noble pursuit. Rather, it should be everyone’s goal to approach investing like a scientist would - to think objectively about the facts that you see and form reasonable conclusions at the end of the day. I hope to write many more articles that reflect my line of thinking, but like people themselves, my thinking is subject to change. I am sure at some point in the future I will no longer view the United States as a troubled country, but rather as a shining beacon of hope - and a great investment opportunity. And likewise, perhaps over time the opinions that I hold will grow to become more fashionable, and I will no longer be able to call myself a contrarian.


    Disclosure: No Positions

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  • Mayo Welch
    , contributor
    Comments (29) | Send Message
    Contrarian? Did you invest against the crowd during the great housing debacle? If yes, then indeed my friend you are a real wild one ;)


    A joke of course, welcome aboard, hope to read more from ya.
    3 May 2010, 10:02 AM Reply Like
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