Comments on: Seven Notes on Equity Investing

By: Greg Feirman

Greg Feirman — Fri, 04 Apr 2008 20:29:33 +0000

Interesting disagreement about what contrarian investing really is.

I agree with David. It’s not about finding some clueless analyst or person and taking the opposite position. It’s about interpreting what asset prices imply about investors beliefs and determining if they are right or wrong. It’s about what’s in the price, not what some people are saying.

And it’s always a matter of interpretation and judgment and not as easy as taking the opposite stance to some “dumb money’.

By: PaulinKansasCity

PaulinKansasCity — Wed, 02 Apr 2008 15:49:22 +0000

None of my close friends have any real interest in the stock market. There is a lot of discussion and concern on housing however.

By: David Merkel

David Merkel — Wed, 02 Apr 2008 04:46:42 +0000

Bill, we disagree on this. My friends did not ask about the markets. They asked about the economy. We also disagree on the basis of contrarianism, and perhaps, its value. During the middle of a move, the crowd is right. At turning points, the crowd is wrong. I think we are in the middle of a larger move, and so I am not willing to say that people who are asking me questions now are naive. Only now is it beginning to bite the real economy.

We also disagree in this way: real contrarianism is betting against the conventional wisdom with a lot of money on the line. People with no skin in the game are of less importance.

By: Bill aka NO DooDahs!

Bill aka NO DooDahs! — Tue, 01 Apr 2008 12:30:15 +0000

The basis of contrarianism is finding the least-informed, least-skilled persons with opinions on the market, and then taking a stance opposite from theirs – because they are most likely “dumb money” and therefore most likely wrong.

Granted, your mentioned friends aren’t market participants, but they certainly seem, from your description, to be less informed and less skilled at economic projection. The fact that they are, now, at the time the market is 5 months removed from highs and re-testing multi-year lows; at the time when the economic news has ALREADY turned for the worse; FINALLY coming to ask you about the economy, strikes me as very contrarian.

Contrarianism isn’t always about the number of people or the amount of money betting on one side or the other; it’s very often about the QUALITY of the people or money betting on one side or the other. Hence, my saying that your story is the “flip side” of getting stock tips from shoeshine boys with the market at multi-year highs.