It’s a pretty simple theory, actually. It isn’t some complicated theory that involves a formula, or letters that represent things, or something that requires twin degrees in economics and math to figure out. You may read about it around the blogosphere, but if you do, it definitely won’t be a theory shared by the majority of bloggers. Basically, it goes like this:
If everybody is bullish on something, chances are it’s a good time to sell. Reverse the rules for something that’s not getting any love.
Now this theory isn’t foolproof. For instance, I think the idea of the Canadian real estate market being overvalued is starting to gain traction. The whole theory about the market being primed for a correction here isn’t totally insane either. I hardly think we’re going back to the lows of last year or anything, but perhaps now is a time to just take small positions.
I’m more thinking about the direction of gold. I’m not even sure where gold is going to go. You’re not sure where gold is going to go either. I do know one thing though- generally when something is hitting a record high, it’s a pretty good time to sell. I’m not going out and recommending one of those inverse gold ETFs yet, but you need to really take a good long look if you’re buying something at a record high.
Contrarian investing isn’t just simply going against the grain. Contrarians don’t zig when others zag just for the sake of being different. No, rather we pick our moments to go against the crowd, picking select issues to be contrarian about. And typically, when something is at a record high, we know the future price is more likely to go down. Yes gold bugs, that includes your most precious metal.
In the next couple of weeks, I’ll be launching the Uproar Fund. If you’re looking for things like pair trades, or put options, or market neutral long/short combinations, then you might as well hit the back button on your browser. The Uproar Fund is going to buy beaten up stocks, stocks with the potential for either great price gains or complete price collapse. Rather than looking at things that are hitting record highs, I’ll be checking out the stocks that are hitting new lows.
Stay tuned folks, and together we’ll see just how well my theory works.