Contrarian Investing – What Would Mary Do?
It has been said for long enough that if you want to enjoy better returns on your-hard earned money you have to save differently from the "crowd" … or "herd" if you prefer. To suss that you need to find out what PUBLIC OPINION is. But how do you do that?
Here's what one hugely successful investor says... "I grant you that you will have to read a pile of news and comments. However our radios, newspapers and magazines unload such a flood of economic news and propaganda these days it's not difficult to get a fairly accurate cross section of what people probably are thinking about and what the composite opinion is likely to be, and what some groups WANT us to accept and believe."
What history tells us about contrarian investing
So when do you think this was said by Humphrey Neill? Well the absence of any reference to Television and Internet should give you a clue! It was written in 1954, in his book "THE ART OF CONTRARY THINKING". He wrote it after 30 years of experience. He even refers in it to the conclusion of Johann Goethe (1749 to 1832) that being contrarian was the only way to be successful vis-à-visthe crowd. So the success of being contrarian goes back into the 18th Century.
Having been an IFA from early 1973 for 40 years I can attest to two things … 1) Contrarian investing works handsomely and 2) It is the hardest thing imaginable, for you to keep your nerve at all times of euphoria and panic isn't easy at all.
Highly respected Financial Analysts Ned Davis Research document the atrocious record of "expert" predictions in more recent times in Ned's book "The Triumph of Contrarian Investing". But evidence of abysmal predictions of "experts" goes back further than most realise. Indeed in the US only a week before a big drop in the Dow Jones in September 1946, official figures showed that only 4.1% of experts were definitely pessimistic and said so. Clearly the vast majority were wrong. So nothing changes there.
In late February 2009 the consensus was that the World faced economic collapse. It followed six months of plummeting Stock markets. The Daily Telegraph could find no one apart from me prepared to write a piece positive for equity investors. I laid out a few factors, including contrarian indicators that pointed unequivocally to a strategy to be bold and go against the crowd of panicked experts and investors. The response from Telegraph readers was not pleasant. I had no idea there were so many nasty words in the English language. But our clients who had been with us a while bought into the positive attitude… and won big time.
But you shouldn't expect anything else. Contrarianism works. And thanks to being in the right areas, taking care to tax shelter your gains and income plus the benefits of compound interest and appropriate investment funds, believe me, over a few years the difference to the quality of your retirement is enormous. We're happy to let you speak independently to many of our long term satisfied clients.
Introducing the Rule of 72
Let me help explain further and introduce you to the RULE OF 72. If you take your present net return after tax and divide it into 72, it will tell you how long it will take to double your money. Over the last 5 and a half years many savers, frightened by the constant bad news have remained in poor Bank accounts. Some pay an interest rate of only 0.1%. But let's assume you received 1% after tax … divide 1 into 72 … and it takes 72 years to double your money. Best of luck!
Meanwhile simply by following an investor who's been successful since 1989 in a fund designed for older savers, over the last 5 years your money would have doubled…in 5 years. And what's more he's been doing that every 5 years over the last 25 years. Now of course it's not guaranteed, and our Regulators insist we tell you what goes up can also go down. So I take it that means what goes down can also go up!
In a recent Probus Society meeting I was asked to talk at, I explained all this and more to an audience fed up with poor returns. But despite the fact a contrarian investment system has worked well over the last 120 years and more, the consensus was it was too risky to embrace this, so all present have elected to stay put in deposits earning the square root of nothing.
Over to you…
If you'd like to learn more of how to enjoy far superior returns without sleepless nights, do give us a call. We don't bite. And we're pretty good at what we do being the only IFA business in the UK to have won the Money Marketing UK Best Investment Adviser award three times.
You should always be aware that:
- The value of investments and any income from them may go down as well as up. You may not get back all of your original investment;
- Past performance should not been seen as an indication of future performance;
- Indications of past performance displayed on this website will not necessarily be repeated in the future; and
- Rates of exchange may cause the value of underlying investments to go up or down.