While traveling after the New Orleans show, I got to spend a little time with my uncle Bob. He’s one of the most successful businessmen I know. Not coincidentally, Uncle Bob is also one of the calmest, most disciplined, and most thoughtful people I know. He saw that my business cards say “Contrarian Discipline Delivers” on one side. A brief but interesting conversation ensued.
I mentioned Warren Buffett, who famously advised investors to be fearful when others are greedy and greedy when others are fearful. This fits Buffett’s company, Berkshire Hathaway, accumulating cash in recent years. The latest tally comes to a whopping $128 billion in the face of the record-breaking rally on Wall Street.
But Uncle Bob disagreed, saying that Buffett likes owning mainstream businesses, like Coca-Cola. Doesn’t seem very contrarian.
This led to the obvious question: “What does it mean to be a contrarian?”
Too narrow a definition, such as “a person who makes a habit of doing the opposite of what everyone else is doing,” is clearly not useful.
I’d also argue that contrarianism for its own sake is no recipe for financial success. Sometimes there obviously is wisdom in crowds. Investors dumping shares in a bankrupt company in droves, for example, is no reason to buy the stock. And sometimes an investment thesis one developed first becomes a popular flavor of the day in the markets. Plus, even a broken clock is right twice a day. Blindly doing the opposite of what most investors do invites disaster.
But it’s just as clear that jumping on a popular investment theme—like Bitcoin as it screamed up to $19,000 ion 2017, or weed stocks more recently—is also inviting disaster.
I think a more useful way to put the question is: “How can we best employ contrarian thinking to be a successful investor or speculator?”
To which my answer is: “Successful contrarians think for themselves and have the discipline to see their trades through, regardless of whether the masses are with or against them.”
Easy to say, hard to do. I know. But this way of looking at it is useful because it directs our attention to what matters: independent thought and discipline. That’s very different from simply having a contrary personality and being stubborn.
I confess I did have this in mind when I named my flagship newsletter The Independent Speculator.
If you haven’t read it, there’s more on this and related foundational issues in my free report, Speculation 101.
Moving from theory to specifics, let’s look at the gold market for an example. As I type in Late November, 2019, gold is off a good $100 from its recent $1,550 highs. Some of my technical friends say that from here, there’s no support above $1,420 or so.
This threatens the newfound interest in precious metals among more investors and even mainstream financial media in 2019. That in turn could force a self-fulfilling prophecy, as investors who lack understanding of the fundamentals panic, taking gold much lower.
I’m not saying this will happen, just that it could happen.
Which brings us back to my definition of a successful contrarian. We shouldn’t just give up and sell because everyone else is selling. Neither should we ignore the market and buy just because everyone else is selling.
We have to ask why people are selling.
That means checking our premises—the fundamentals—and seeing if anything has changed that warrants a change in our outlook and action.
- World still drowning in a rising tide of negative interest rates that make gold a very attractive safe haven?
Check.
- Global economy still threatened by a trade war between the world’s two largest economies?
Check. (Ignore the tweets; it ain’t over until it’s over.)
- Geopolitical tensions still simmering at the edge of major warfare?
Check.
- Global economic outlook still cooling?
Check.
- Social upheaval in multiple countries (not just in Latin America)?
Check.
- Governments around the world still creating money out of thin air like crazy?
Check.
- Fed signaling easy money and expanding its balance sheet?
Check. (QED.)
That last point is critical. The Fed is manifestly throwing the dollar under the bus to try to prop up an aging boom. This is being masked by other countries doing even more of the same, causing the dollar to lose the race to the bottom. But we see the truth in the rising prices of real assets.
In this context, I can’t be accused of fighting the Fed. It’s the folks who imagine that the Fed can debase the dollar and that that won’t show up in the price of gold who are fighting the Fed.
I understand that this doesn’t make it easy to face what sure looks like a fading gold rally.
These are the times that try gold bugs’ souls… I do get it.
So, we must all ask ourselves two questions:
- Do the facts support our investment thesis?
- Are we true contrarians?
If the answers are yes and yes, our course is clear.
For me, the answers are indeed yes. I’ve prepared stink bids to place should gold drop below $1,450 and head lower during Tax Los Season of 2019. I’m not just being rebellious and stubborn. I’m preparing to act according to what the evidence and my understanding of it tell me. I could be wrong, of course, but I don’t think I am—so I must act accordingly.
The same logic applies to the much-hated uranium space, by the way. I know it’s not for everyone—which is precisely what gives it so much leverage. Uranium is the contrarian’s contrarian play today.
For specifics, please subscribe to The Independent Speculator. The current edition is devoted to the actions I plan—or am taking—in the face of current opportunities.
But the idea, and my definition, are yours free and clear. I hope they benefit you greatly.
