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June 30, 2008

The End of Naive Contrarianism

I call bullshit on naive contrarianism. There are too many people looking to take the rhetorical other side of every short-term blip in market sentiment. Every amateur contrarian -- many of whom admittedly talk a good game, but never trade that way, of course -- prattles endlessly at each supposed sentiment inflection point about "going the other way". Case in point: I'm hearing lots of such talk today from the chattering class.

The trouble is, empty-headed contrarian calls like these have lost investors money repeatedly over the last twelve months. It is naive and facile illogic. Because while the investing pack is sometimes wrong, and big inflection points are often missed, the market's investing pack is usually right: Going the other way against the crowd too early or too late is indistinguishable from being dead wrong. So, while contrarianism can work, the art is in knowing when to bother trying, not to shout "buy now" every few points up or down, like you're at some CNBC-watching drinking game.

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