By Thomas Kostigen
Famed investor Martin J. Whitman used to say that if he walked into a company’s roadshow meeting designed to attract investors and the room was full, he’d immediately turn around and walk out. Whitman was a well-known contrarian in the style of Warren Buffett — zigging when others zagged.
Contrary indicators can make investors super successful, if they know how and where to look for the right signals for success. The Wall Street Journal noted the relevancy of contrary investing in a recent column, stating that now, as markets soar, may be a particularly relevant time to consider this investment style.
A contrary indicator is exactly what it says: a signal that it may be a good time to invest in the opposite direction of conventional wisdom. As the Journal noted, “Cash has been flowing out of the stock market this year—which could be bullish, if you believe in contrary indicators.”
Despite the huge swing to record highs in the stock market from the record lows last March, when COVID-19 woes swept the market, the current sentiment is largely bearish. And that may mean it’s time to buy for contrarian investors. The American Association of Individual Investors has a host of resources for the contrarian minded, listing web sites that offer advice and educational information about contrarian investing. Among them are:
AAII says the Contrarian Investing Association’s stated purpose is “to bring independent-minded individuals together, share ideas, to have fun and to make money while going against the crowd.”
The site is devoted to bear-market-minded investors and supports a contrarian investing style. Periodically, an updated commentary is posted on the home page that discusses the current market in relation to the bear market philosophy, according to AAII. Archived commentaries are available as well.
To be sure, AAII has its own contrarian indicators that investors look to for market insight. For example, the bull-bear spread of its investor sentiment survey is often looked to for forecasting up/down stock market insight. This survey tracks what percentage of individual investors are bullish, bearish or neutral for stocks over the next six months, explains the Journal.
Another place to look is the futures market. The Commodity Futures Trading Commission makes this information available in its weekly Commitments of Traders report. Investors can glean from the positive or negative direction of futures traders how the market might react.
Of course, conventional wisdom is often right, hence why it is the wisdom of the crowd. Contrarian investing works best when markets are at their extremes. That’s when the most value can be created. It’s risky, though. A good financial advisor can help you spot the good opportunities —even and especially when everything looks bad.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.