Contrarian Investing Today

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Karl
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Contrarian Investing Today

Post by Karl »

Any thoughts on what asset classes a contrarian investor would favor today?

I find myself unable to think of any. Back in 2000 -- what now look to be the good old days -- one could avoid the sky-high valuations of the dot.com bubble by buying stuff nobody was interested in at that time: gold, TIPs, REITs, small cap value stocks that never had '.com' after their name. Even a MM looked mighty good at 5%.

I very much like the idea of buying stuff that everybody else hates. The more hated it is, the less it costs & the more I love it. Unfortunately, as I look around I simply can't find any asset class that's truly down & out.

Perhaps I should change my question to: what asset classes do you feel are the least over-valued at this time?

As a long-time Vanguard investor, I always keeps a broadly diversified portfolio, but still I like the idea of putting a tiny bit of emphasis on that which currently has the most attractive valuation. A few of the old timers around here might still remember me, even though I haven't posted regularly here in the last decade.
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White Coat Investor
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Re: Contrarian Investing Today

Post by White Coat Investor »

It doesn't take an old-timer to remember you Karl.

Consumer loans a la Lending Club? High risk for sure but the risk seems rewarded IMHO. European stocks perhaps.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
555
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Re: Contrarian Investing Today

Post by 555 »

Buy whatever is "cheap".

But you have to define "cheap".

"Cheap" is whatever is going to go up the most in the next ten years.
pingo
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Re: Contrarian Investing Today

Post by pingo »

It sure seems like everybody hates bonds lately.
dgdevil
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Re: Contrarian Investing Today

Post by dgdevil »

Facebook stock? Berkshire-Hathaway?
sport
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Re: Contrarian Investing Today

Post by sport »

Greek bonds?
claimui
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Re: Contrarian Investing Today

Post by claimui »

One option is very obvious: Gold miners. Vanguard even has its own fund (Precious Metals and Mining). If you go to Vanguard's fund list, and sort all funds by YTD or 1 year return, you can see that the Precious Metals and Mining fund has been absolutely terrible.

(I think it had a bit of a bounce over the past few months, but it is still terrible.)

Two notes:

1) Vanguard's fund is apparently much worse than its peers (Morningstar puts it in the bottom 5% of the "Equity Precious Metals" category) so that may overstate how bad the asset class in general. Looking at this chart: http://news.morningstar.com/fund-category-returns/ the category overall is indeed one of the worst performers this year, but not as bad as Vanguard's fund. Maybe that makes Vanguard's fund extra contrarian?

2) There are many, many reasons why gold miners have been underperforming gold and are expected (at least according to the market) to continue doing so. When you do your research you may find up giving up on this idea completely... but that's why it's called contrarian investing. ;)
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Karl
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Re: Contrarian Investing Today

Post by Karl »

claimui wrote:One option is very obvious: Gold miners. Vanguard even has its own fund (Precious Metals and Mining). If you go to Vanguard's fund list, and sort all funds by YTD or 1 year return, you can see that the Precious Metals and Mining fund has been absolutely terrible.
I've long owned that fund, having bought a very tiny amount back in early 2000. I think the distributions alone have exceeded my original investment. Back then buying gold mining companies was deemed a sure symptom of insanity. That was after gold had spent the prior 20 years going down.

While it hasn't done well lately, gold is no longer equated to outright insanity. For some reason investors much prefer gold at $1,700/oz than they did at $250/oz.
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Karl
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Re: Contrarian Investing Today

Post by Karl »

pingo wrote:It sure seems like everybody hates bonds lately.
Isn't HY Corp closed to new investors because it's liked a bit too much? With bond yields dropping for the last 30 years it's hard to get too excited by bonds. Their yields only look impressive compared to MMs at basically zero.

The investment world has been turned upside down, with threads here on how one may wish to stuff stocks into IRAs given how stocks now yield more than bonds. I can think back to when I joined this board, a time when such would have been totally unimaginable. How many investors are old enough to personally remember the last time stock yields toped bond yields (the mid to late 1950s)? They'd also remember the following quarter century proved a terrible time to be a bond investor (not that the 1960s & '70s treated stock investors well, but bond investors were even worse off).
pingo
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Re: Contrarian Investing Today

Post by pingo »

Karl wrote:
pingo wrote:It sure seems like everybody hates bonds lately.
Isn't HY Corp closed to new investors because it's liked a bit too much?
True. My comment was meant to be tongue and cheek as I had nothing productive to offer. "Love-hate" may better express the view. I suppose it's because investors are reaching for HY yield out of desperation and performance-chasing, or they're purchasing less-than-appetizing bonds out of fear of equities. It may all turn out like a horrible relationship that one knows is destructive, but just can't seem to break away.
Karl wrote:With bond yields dropping for the last 30 years it's hard to get too excited by bonds. With bond yields dropping for the last 30 years it's hard to get too excited by bonds...The investment world has been turned upside down, with threads here on how one may wish to stuff stocks into IRAs given how stocks now yield more than bonds.
Thus, "hated". :wink:

I haven't been around too long, but I agree with your concerns about such posts and with your concerns about the bizarre, if not frightening circumstances of the current climate investment environment.

As for the contrarian in me, I may only be able to clearly see opportunity in another crash, as I did in the last one (before I found this site, mind you). From here on out, and perhaps through the next crash, the only way for me to get a clear idea of the right contrarian move is through rebalancing my portfolio according to my IPS.

I do it, but I don't always like it since not too long ago it had me purchasing more bonds. :beer
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richard
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Re: Contrarian Investing Today

Post by richard »

pingo wrote:It sure seems like everybody hates bonds lately.
No doubt that's why prices are at record highs.

Remember the old Yogi Berra line: "Nobody goes there anymore. It's too crowded."
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Re: Contrarian Investing Today

Post by NYBoglehead »

pingo wrote:It sure seems like everybody hates bonds lately.
I would respectfully disagree.

http://www.reuters.com/article/2012/10/ ... QG20121024

Bond funds still showing heavy inflows...equities, not so much.
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Re: Contrarian Investing Today

Post by Valuethinker »

EmergDoc wrote:It doesn't take an old-timer to remember you Karl.

Consumer loans a la Lending Club? High risk for sure but the risk seems rewarded IMHO. European stocks perhaps.
Yes. European stocks.

My own view is the 'contrarian' argument is for global equities right now. In that bonds have a high chance of giving you a negative real return in the next 10 years. Cash.

it is not that stocks are cheap, so much that everything else looks expensive, though.
pingo
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Re: Contrarian Investing Today

Post by pingo »

richard wrote:
pingo wrote:It sure seems like everybody hates bonds lately.
No doubt that's why prices are at record highs.

Remember the old Yogi Berra line: "Nobody goes there anymore. It's too crowded."
NYBoglehead wrote:
pingo wrote:It sure seems like everybody hates bonds lately.
I would respectfully disagree.

http://www.reuters.com/article/2012/10/ ... QG20121024

Bond funds still showing heavy inflows...equities, not so much.
Thank you for your responses. I don't disagree with either of them.

I think it ironic, frankly. Folks seem to hate the yield of non-HY, but money continues to pour in all over the bond market. I addressed some of the problems with my statement just moments before your posts (see above).
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Re: Contrarian Investing Today

Post by SP-diceman »

Karl wrote:Any thoughts on what asset classes a contrarian investor would favor today?
Japan, equities/bonds/currency.
Perhaps I should change my question to: what asset classes do you feel are the least over-valued at this time?
GM, Chevy Volt :)
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Re: Contrarian Investing Today

Post by leo383 »

Bogle himself has said that this is the toughest environment for investing he has ever seen.
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Re: Contrarian Investing Today

Post by garlandwhizzer »

I tend to agree with the premise of contrarian investing when investor sentiment swings to extremes in either direction, greed or fear. Recently due to the severe and striking underperformance of gold mining stocks relative to the price of gold, I took up a position in VGPMX. I have had experience with this fund before and have made considerable money in it, but one must recognize that, totally unlike the Bogleheads view of investing, this is a highly speculative position. You have to buy very low which it was a few months ago and sell high which hopefully it will be. Gold mining companies are among the most poorly managed firms in the world and often squander their profits. These firms also have serious political risks (nationalization of mines in the third world) and ever increasing costs of mining an ounce of gold. But these risks are more than baked into the prices of gold mining stocks at present in my view. The ratio between the price of gold and the price of GDX (broad gold mining stock etf) recently hit an all time high, indicating that the price of the stocks does not at all reflect the potential profits of the precious metal. It is simple arithmetic. If you can mine gold for $900 an ounce and sell it for $1700, how can you lose except by stupidity?

VGPMX is run by Graham French, a seasoned and highly competent portfolio manager. While his 1, 3, and 5 year performance is quite poor, his 10 year performance is superb relative to peers. Currently VGPMX has a PE ratio about the same as VTI but its profits are growing at 25% per year, an annual rate that Morningstar estimates it can maintain for 5 years. VGPMX owns large quantities of precious metal deposits that are in the ground and represent significant future earnings power, regardless of whether the world is in recession, boom, inflation, or deflation as long as people, and more importantly, central banks value gold which they seem to do because, unlike currency, it has a strictly limited supply and can't be printed at will.

So I took a chance on VGPMX with 5% of my portfolio, accepting the very real risks and knowing that, unlike my TSM holdings, the time will come to sell it and, hopefully, take some profits.

Garland Whizzer
325e
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Re: Contrarian Investing Today

Post by 325e »

I have thought about TNX, the ten year note interest rate. It would be a bet that rates go up at some point.

http://finance.yahoo.com/q?s=%5ETNX

It is historically low. And it could double or triple in the next five years. But it is very volatile, and somewhat speculative because they could stay low for a long time.

Edit: it doesn't look like you can buy TNX, it is an option or something. But I saw on another post TBT or PST are basically shorting the interest rate.
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Karl
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Re: Contrarian Investing Today

Post by Karl »

leo383 wrote:Bogle himself has said that this is the toughest environment for investing he has ever seen.
I'd tend to agree. And that means a lot coming from Bogle, a man who's 83 & has spent his entire adult life in the investment industry.

I look around and see nothing cheap. It's all expensive vs even more expensive. I'd tend to agree with those above who like foreign stocks. They're not cheap, only less expensive than bonds where you can get all of 2.2% on intermediate corporates.
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Re: Contrarian Investing Today

Post by wriggly »

Non-prime commercial property.

The general focus on "quality" in most asset classes means prime property that will always find a tenant (generally due to location), has bounced back, lower than 2007 but seemingly over-valued.

Other locations, either in less desireable parts of big cities, in failing cities, or outside big cities, are under-valued. No-one thinks those places will thrive again for a long time.

That's a contrarian investment.

Hard to invest in a Boglehead manner. You would need to identify a REIT with a portfolio concentrated in these types of locations.
dgdevil
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Re: Contrarian Investing Today

Post by dgdevil »

dgdevil wrote:Facebook stock? Berkshire-Hathaway?
Facebook (FB +12.59%) jumped even as investors positioned for the expiration of lockups that will make about 804 million shares available for trading on Wednesday—nearly double the amount of the existing public float. Some market watchers said buyers jumped in when shares didn't initially fall.

(WSJ, Nov. 14. I hate everything about FB, btw)
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Re: Contrarian Investing Today

Post by FillorKill »

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technovelist
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Re: Contrarian Investing Today

Post by technovelist »

I believe that the average investor has 0% allocation to gold, so it would be hard for anything to be more hated than that!

And this is true even though it has been going up for 12 consecutive years and it appears this year will make it (lucky?) 13.
In theory, theory and practice are identical. In practice, they often differ.
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Re: Contrarian Investing Today

Post by Cut-Throat »

technovelist wrote:I believe that the average investor has 0% allocation to gold, so it would be hard for anything to be more hated than that!

And this is true even though it has been going up for 12 consecutive years and it appears this year will make it (lucky?) 13.
If you are invested in Index Fund, You have been invested in Gold Mining Stocks and have profited over those years.
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Re: Contrarian Investing Today

Post by norookie »

Contrarian opportunities are being discussed by insiders yesterday. As in the financial crisis, which AIG opportunity would survive and how to prosper from it. :P
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dgdevil
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Re: Contrarian Investing Today

Post by dgdevil »

BlackBeltLurker wrote:
Karl wrote:
leo383 wrote:Bogle himself has said that this is the toughest environment for investing he has ever seen.
I'd tend to agree. And that means a lot coming from Bogle, a man who's 83 & has spent his entire adult life in the investment industry.

I look around and see nothing cheap. It's all expensive vs even more expensive. I'd tend to agree with those above who like foreign stocks. They're not cheap, only less expensive than bonds where you can get all of 2.2% on intermediate corporates.
Another nod to international equities - large and small. That's all I've been interested in [with my tactical funds] for 14-16 months or so. Nothing looks great.

Bonds make me recoil in horror. US equity is reasonable to somewhat high. Cash is hideous. What else is there?

Just another chime-in from a guy with a contrarian bent and no predictive powers or other unique insights.... :|
I like the cut of your jib, but I don't think folks in America appreciate the gravity of the situation in Europe (incl. United Kingdom), and how USA could be affected as the crisis worsens. I would tend to be very selective when it comes to buying European equities, and certainly in no rush in general.
FillorKill
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Re: Contrarian Investing Today

Post by FillorKill »

I like the cut of your jib, but I don't think folks in America appreciate the gravity of the situation in Europe (incl. United Kingdom), and how USA could be affected as the crisis worsens. I would tend to be very selective when it comes to buying European equities, and certainly in no rush in general.
Thank you. I agree that most of us here in the US are cloistered in the comforts of our slow but steadily improving [and comparatively enviable] economy and markets. I know that I don’t know much. I have the same problem as the OP – I just don’t like too much right now. For me equities [here and abroad] are the only game in town. Not that I’m thrilled about it. And who knows? Those internationals have taken a beating for a reason. Sometimes you just get the risk. I don’t have a better plan. :?
64415
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Re: Contrarian Investing Today

Post by 64415 »

Florida vacation homes are fairly unloved. I am investigating. Granted you are still making more of a luxury consumer
item purchase than a true investment given the 3% annual drag from property taxes, insurance, and maintenance, but they certainly are heavily discounted. I am looking at the last short sale townhome available in my parents gulf coast boating community. Annual taxes, insurance, HOA's equal $12000 per year. Gross rentals last year were $20,000. $350,000 will probably buy it, it sold for $720,000 in 2006. Recent non short sales are in the $425-450K range in this development. Association maintenance funds are fully funded. Not a screaming deal, but certainly better than buying bonds.

Sebastian
technovelist
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Re: Contrarian Investing Today

Post by technovelist »

Cut-Throat wrote:
technovelist wrote:I believe that the average investor has 0% allocation to gold, so it would be hard for anything to be more hated than that!

And this is true even though it has been going up for 12 consecutive years and it appears this year will make it (lucky?) 13.
If you are invested in Index Fund, You have been invested in Gold Mining Stocks and have profited over those years.
Gold != gold mining stocks.
In theory, theory and practice are identical. In practice, they often differ.
Valuethinker
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Re: Contrarian Investing Today

Post by Valuethinker »

wriggly wrote:Non-prime commercial property.

The general focus on "quality" in most asset classes means prime property that will always find a tenant (generally due to location), has bounced back, lower than 2007 but seemingly over-valued.

Other locations, either in less desireable parts of big cities, in failing cities, or outside big cities, are under-valued. No-one thinks those places will thrive again for a long time.

That's a contrarian investment.

Hard to invest in a Boglehead manner. You would need to identify a REIT with a portfolio concentrated in these types of locations.
I see you are in the UK. You probably saw Workspace (city industrial property) went up +20% on results? Also Great Portland did a share placing, and they are buying 'difficult' sites in the West End-- and the supply demand there still seems very favourable (residential I think overvalued; and student housing has seen a big influx of money-- choose carefully).

And yes, I agree with you. For the brave, and the knowledgable, there is non prime commercial property on 9%+ yields. When London offices are below 5%, maybe even down to 4%?

UK High Street is quite dangerous (but there will be OK High Streets!). Industrial has definite possibilities. Personal storage. Distribution & logistics centres? Not sure if flexible offices are overdone, but there, too.

I have more reservations re hospitality and leisure. The squeeze on the consumer here is anything but over. Seems to me Premier Inn is cleaning up on the value end of that spectrum, and Travelodge may start to be a real competitor (and there is Holiday Inn value format). That hurts all the little people-- the squeeze is on, from boutiques at the top end and the value chains at the bottom. Leisure? Pubs and clubs are just difficult-- I don't think we've seen the end of that set of problems.

I imagine the right strip malls in the USA, areas with immigrants, where demographics are good, and employment improvements will feed straight through.
pingo
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Re: Contrarian Investing Today

Post by pingo »

I don't know if it has anything to do with contrarianism, or whether it is based on some kind of fundamentals lumped on top of some variation of the Gordon Equation for estimating asset returns, but Rick Ferri's firm Portfolio Solutions posted it's 30 year market forecast and the highest expected returns are from Small Cap Value and Emerging Markets. Here's the link:

The Portfolio Solutions 30-Year Market Forecast for 2012
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