Bears, Bulls and Barbecues

Daniel Mueller

Want to know what a pretty picture looks like in the eyes of a contrarian investor? Today’s Australian Financial Review (AFR) provides the answer. For those who have a hard copy, turn to page 15 of today’s edition. There are three very bearish articles on three different asset classes, Australian stocks, global stocks and Australian bonds.

All three quote experts in their field, forewarning investors that all three assets classes are to be avoided, at least for 2017. And if you flick through the pages there are some very bearish articles on the banks and Telstra (TLS). So why am I not partaking in the gloom and doom?

It’s important to realise that the media is society’s barometer for sentiment. And in the world of investing, society is the herd. Us ;contrarians like to move against the herd as it is usually proven wrong over time. Why? The herd chases momentum. It can cause exponential price rises in stocks with a good story but often unproven or unsustainable business model. Just look at the share price charts of Bellamy’s (BAL) or Sirtex (SRX) in recent times.

On the other hand, the herd won’t touch stocks that are out of favour at cheap prices. Our investments fall into this category.

There are always bulls and bears in the investing world but in today’s AFR the bears are out in force.

Market peaks are accompanied by euphoria, not gloom and doom. And there are no bears to be found. As a fund manager, I know the top is near when I get asked for hot tips at barbecues. I’ve rarely been asked for a hot tip since 2007. Perhaps I haven’t been invited to enough barbecues.

The barbecue conversations are accompanied by very bullish articles in the media. These are usually located beyond just the business section of newspapers. They often make front page news and appear on the front cover of esteemed journals. There are certainly no articles like those in today’s AFR at market tops.

My view is that the market is by no means cheap. But it is not overly expensive either. And so long as bearish articles appear in the media, the bull market should have further to run.


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Umberto Mancinelli

Kindly advise when you start getting invitations to BBQs :-)

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Karyn Winder

Totally agree. The top is when all the bears get so frustrated by years of low or negative returns, that they give up on their contrarian positions, and join the herd. Like George Soros going all in on internet stocks at the end of 1999 after spending years shorting them. At the moment the fad of the day is contrarian macro funds - seems every blogger and his dog is setting one up. Its like small cap funds a few years ago - look how that's turned out this last year. So for now, while everyone thinks doom and gloom will make them money, it wont. The herd is not yet stampeding.

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