Tag Archives: Contrarian Investing

Should we buy the dip?

Last Wednesday we saw a broad sell off in global equity markets. We had not seen this degree of a sell off for quite some time. For instance, the most widely used ETF (QQQ US) of the NASDAQ 100 Composite Index fell 2.54%. The next day QQQ rose by 0.87%, and on Friday it rose again by 0.42% – closing at a level that was just 0.87% away from recent highs.

Our foremost mission is to safeguard our clients’ capital. Therefore, when faced with drawdowns of a significant amplitude, we must decide whether fight or flight is the most appropriate response. In other words, should we be selling, or should we buy the dip?

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Our November Results – The Game Has Changed

nov-2016

Last month was a very eventful month that saw drastic moves in all major asset classes.

Following Donald Trump’s victory in the US presidential elections, market sentiment changed not over weeks or months, but over hours and days. The vast majority of mainstream media and sell side analysts were dead wrong in their predictions – both in predicting who would win and in how financial markets would react if Trump won.

In the days that followed Trump’s victory, markets showed that investors are expecting heavy spending on infrastructure, tax cuts for both companies and individuals, and less onerous government regulations. As such, many sectors rallied strongly for several days, and all major US stock market indices reached new highs. It remains to be seen which of these policies are actually implemented and to what degree, but in the meantime it would be foolish to fight the tape.

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Most Investors Think They Are Contrarians

Here’s a link to a great article from Morgan Housel @ The Motley Fool about how investors tend to perceive themselves:

LINK: Everyone Thinks They Are Different

I would only partially agree that “contrarianism is the key to huge outperformance”. The size of your allocation is of paramount importance as well. At the end of the day, the market doesn’t care about your style or your philosophy. What matters is whether you win or lose, and if you live to fight another day. There are no ‘beautiful losers’ in this great endeavor – contrarian or not.

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Contrarian Thoughts – Biotech Edition

When mutual fund sales people come to visit, they come with a bag full of presentations on their ‘hottest funds’. These include whatever funds have nice charts that go from the bottom left to the upper right, or whatever happens to be the hot topic of the day (unconstrained, short duration bond funds were quite popular over the past 6 months). This makes sense. Their job is to sell their funds, and they focus on whatever funds they think will capture our interest. As such, they are invariably thrown for a loop when I ask them to tell me about their worst fund.

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Contrarian Investing – Emerging Markets Edition

I attended a number of panel discussions and seminars on the state of Emerging Markets at the JPMorgan Emerging Markets Corporate Bond conference last week.

I noticed two things in particular: (1) there did not seem to be all that many people in attendance, and (2) there were many South Americans.

Initially, it seemed strange to me that someone would fly 8 hours from Santiago, Chile to hear about their country’s corporate bonds (OK, fine, 4 days in Miami Beach is not a tough sell…). However, considering the brutal state of Emerging Market bonds and equities – especially Latin America – over the past year, it soon became obvious that many had made the trip to just clear their heads and get some group support.

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