Thursday, August 11, 2011

Why contrarian investing is so difficult?

Why contrarian investing is so difficult?

(1) Because we are too smart.

Please elaborate.

Our brains are very easy to be sold with good data, statistics and arguments.

When smart people open up newspaper and research papers, they find that it is so convincing and makes so much sense to explain how the market got flushed down the toilet.


Chinese PMI drop below 50. That's signal contractions. Inflation above expectation signaling more tightening. Housing prices in major cities are still very firm. Property bubble is about to prick. Hard landing, got it????

PIIGS contagion will lead to sell off in emerging markets. Their banks refusal to loan will reduce liquidity. Those holding European assets will see their value dwindle. Lehman, remember?????

Unstable middle east, rioting are telling you price of oil will go up. Weak economy, high oil price, suicide okay????????

US government liquidity is no use because they don't have credibility. Forget about QE, they are pushing wet strings okay??????????

Japanese economy is already in recession. 10 more viagra tablets also cannot wake up, okay?????????

Everybody is overloaded and that will force to be disciplined with their fiscal expenditure. Consumer stop spending, government stop spending, who is going to spend??????

Projection of good negative arguments reinforced by downward stock market price makes so much sense.

(2) Uncle Faber and Rogers are on TV again

I have a lot of respects for these two gentlemen and they have been appearing on TV very regularly during the last 29 months of bull run but no one want pay attention to them. Suddenly all of us pay attention to them again.

Media will always want to you hear what you like to hear. When you think we are going for DOW 5,000, see faces of these two gentlemen will make their sales soar. Media won, investors lost!

(3) Our ancestors were not chimpanzee but cows and birds

The herding instinct makes up 99.99% of our DNA.

(4) lost money on Aug 5, Aug 9 and Aug 11. There must be no hope already.

O yea, I forgot to mention about capitulation. When investors capitulated, it does not mean that the market will not move lower. It will remain volatile for a while, could be days or even weeks. But when it start to run, the run can be sharp, 30, 40, 50% while many people will still call them "bear" market rallies.

(5) Investors/pundits already fully invested at the top and no more cash left.

So, they will sit down and curse and thinking the grapes must be sour.

(6) Valuation is too low, something must be wrong.

Stock market is a very efficient discounting machine. Earning will fall very badly soon.

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