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| Adrian Mastracci, president
of KCM Wealth Management, says "Contrarians
have the foresight to recognize buying opportunities
before the masses do." |
For Immediate Release
Vancouver, BC (February 14,
2003): Adrian Mastracci,
investment counsel & president of Vancouver's
“fee-only” KCM
Wealth Management, comments on investing
the contrarian way.
Conventional wisdom reveals that many investors
run to the sidelines for cover during long stock
market declines. They then re-enter the investment
world when the good times return.
On the other hand, contrarian wisdom happily
welcomes deep discounts. They are excellent prospects
to review investment game plans, and seek buying
opportunities. Like the ones of present day.
Contrarians have the foresight to recognize buying
opportunities before the masses do.
The contrarian camp can deliver rewards, but
it is not for everyone. Risk is ever present and
contrarian investing is not about always being
right.
As the frosty times unfold and investors bail
out, a “sale” tag appears on some
investments. Contrarian investors revel in buying
quality at substantial discounts.
The emphasis is on quality. The sale can end
abruptly with little or no notice.
Nobody has the insight to pick market bottoms
in advance. Not even the professionals. However,
investors with foresight to buy quality on weakness
can reap long run rewards.
The contrarian secret is straightforward. It
is a three-part strategy:
- Buy quality investments at a discount before
everyone else does.
- Monitor and review your investment progress.
- Hold the selections for a long time.
Contrarian investors have had at least 10 buying
opportunities since 1945. We refer to them as
bear markets.
October 1987 was particularly delightful! The
Dow Jones index plummeted 22.7% in one day.
Investors have overcome all past bear markets.
Albeit, some were tenacious before they vanished.
Contrarians believe the sun will rise and shine
again on today’s bear market.
Buying quality investments when the masses are
dumping them and running for cover is of great
interest. If the beaten up investments make sense,
they can make excellent buys. Perhaps, even if
the prices fall further. And they might.
While the path is simple, it is far from easy.
Hence, some thoughts for wannabe contrarians:
- Ready the game plan to take part in the investment
“sale” as it unfolds.
- Skip the fanciness. Buy the wide market where
possible, instead of specific sectors.
- Avoid the investment bandwagons of the day.
Bandwagons eventually fizzle out and most investors
miss the exit signs.
- Pay special attention to diversification.
Understand risk factors and stay within the
investor profile.
- Expect some contrarian investments to head
south. A capital loss strategy is a must, such
as selling after a 30% drop.
Contrarians limit market exposure by committing
only a reasonable portion of the total portfolio.
Say 10% to 20% of the portfolio.
A way to adopt contrarian strategy is to purchase
the investments over time. There is no pressing
reason to buy the full position at once.
That is it! So, let me say it again… Acquiring
quality at a discount can be rewarding.
Reacting to the markets after the fact is conventional
wisdom. It takes patience and bravery to travel
the contrarian road. However, the potential rewards
can be significant.
Contrarians cope with continuing market fears
and uncertainties. They focus on the long run
horizon.
Do some homework. Deep discounts can be magnificent
buying opportunities.
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