This has been a great learning year for young investors, especially if you had free cash laying around! Unlike previous market turmoil of drastic declines that were based upon economics, this was a “self-induced pandemic market crash”. This provided for scary times for many older and retired investors who had to watch their portfolios drop by 20% to 40%, not knowing if it would recover. For experienced investors, it was possibly a “once in a lifetime” opportunity.
Being a contrarian investor does not mean you always swim upstream; it simply means you are aware of trends that may not be popular at the moment but could be the best opportunity going forward. Most investing is considered to be long term unless you are a day trader. But long term does not mean 25 years; it actually means for longer than a year.
For most of the last 10 years, investments in larger companies (S&P 500 companies) dominated, but when the pandemic hit these same holdings got hammered. No one, and I mean no one, predicted the market crash, just as not a single economist, politician, or talking head in the media predicted the turn-around for the unemployment numbers. And that is the key: you have to be able to gain understanding of what is happening in your world and look for trends that affect you to give you insight into how you invest.
For example, at the end of 2019, you had a Brains portfolio that allocated 25% to “Thriving World”, 25% to “Cyber”, 25% to “Alternative Energy”, and 25% to “Technology.” In March, when the markets started to be affected by the pandemic, what would you have done?
Your choices would be to do nothing and ride out the storm or move investments into the “Money Market”, or think about what might benefit from the current market environment. Initially, you realize that the medical, health, and biotechnology sector is going to be needed. You also realize that the large cap growth in the “Thriving World” is getting hit hard, but the “Longevity” fund holds many health and biotech companies. Would you transfer the monies from one to the other?
As the markets continued to cave in mid-March, would fear grip you and cause you to cash out and hide in the money market? Or would you have realized an opportunity and thought about which sectors in the economy might benefit the most coming out of the pandemic crash?
From a purely contrarian point of view, when the oil prices plunged and the energy sector took a beating, would you have realized that Exxon, Chevron and other very large energy companies had strong balance sheets and could weather the storms and presented an investment opportunity? With cheap oil prices, alternative energy options are not as viable. As a result, you might have moved from “Alternative Energy” to Traditional Energy” and obtained a significant upside of 40% to 60% in just a few months!
Bottom line: look for opportunities when the markets are changing, be aware of when certain industries are in favor and when they are out of favor, do not to try to “time” the market (which rarely produces good results), and stay invested for your long-term financial wellness.
An old saying about a dog sled: “If you are not the lead dog, your view will never change.”
Are you a contrarian investor or not?
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