It’s time like these that you learn the true value of being contrarian

Stocks are now in a global bear market. But for the true contrarian, these are exciting times. John Stepek explains why.


Global stockmarkets have fallen into a black hole

It's a little ironic that in the same week as we apparently proved that gravitational waves generated by the collision of two black holes really do exist, the global stockmarket has also fallen into a black hole of its own.

Stocks are now in a global bear market, says Bloomberg. That's fairly meaningless; I think we all knew they were in trouble, judging by the collapse in prices this week.

Let's move away from the whys and the wherefores briefly this morning.

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Let's just talk about what you should do

I have a confession to make about markets like this

But if I'm absolutely honest, there's a part of me that finds markets like this rather exciting.

I have many selfish reasons for that. Obviously, I write about finance, and when this sort of thing is happening, there's more interesting stuff around to write about.

But at a more general investment-related level, it's exciting too. Here's why.

I'm 40. So my investment horizon is still long. I can't take my pension for at least 15 years, and realistically, I don't think I'll be taking it for 30 years (assuming reasonable health, and that I'm not replaced by a robot in the meantime).

So, it's as Warren Buffett says if you are a buyer of beefburgers, then you should be happy when they go on sale. If you're a buyer of stocks and the average person my age is then you should be happy when they go on sale.

Regardless of whether or not you find Buffett's folksy style grating (and believe me, I do, grim-faced British cynic that I am), his basic point is right. If you were happy to buy a stock or a market when it was 20% higher than it is today, you should be overjoyed to keep buying it right now.

Know why you own what you own

Shake-ups like this make you realise the value of keeping an investment journal. Why do you own this asset? Why did you buy it in the first place? Has the reason for doing so changed? If not, don't worry. If it has well, you need to review your case. Maybe it's still valid.

The point is you should know why you bought something. And the problem arises when you invest in something for little more reason than "It's been going up for ages and I think it'll go up some more". Or "it's fallen by so much that it just has to rebound".

Because then, when it stops going up, or it just keeps falling, your rationale for buying is gone. You're losing money which hurts. And so you panic.

This is another core argument for value investing and contrarian investing. If you own things that are cheap and that the market hates, then you'll be used to the market treating you with contempt, frankly.

You'll be used to enduring periods of watching trashy, over-priced nonsense shooting up on the back of facile arguments while your own carefully argued portfolio meanders along in the manner of the tortoise.

And so short-term price movements won't faze you.

Better yet, because you're keeping your head, you'll be in a position to spot the opportunities as they arise. You won't be panicking about your losses, you'll be looking for the best places to deploy the cash you've been keeping as "dry powder".

For example, I reckon the mining sector is starting to look interesting again. We might not be there yet, but we can't be far off it. I like the gold miners (obviously, we've been talking about them for a while). But more generally, I think we could be getting to a turning point more on this in future issues of the magazine.

Sign our petition to save cash

I talk a lot about negative interest rates and scary central banks in the latest issue of MoneyWeek. This is a really important story, by the way, so if you've still got a pile of MoneyWeeks in their cellophane to read by the side of your bed (I have a frightening reading pile too, I know what it's like), then maybe promote this issue to the top of your pile.

But my colleague Nick O'Connor has also set up a petition on the government website, asking that the government confirm it won't scrap cash. We had more than 5,500 signatures last time I looked, and we only need 10,000 to get to the point where the government has to at least respond to our concerns. So if you haven't already, it'd be great if you could sign it thanks.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.