What Is a Contrarian?
Contrarian investing is an investment style in which investors purposefully go against prevailing market trends by selling when others are buying and buying when most investors are selling. Berkshire Hathaway Chair and Chief Executive Officer (CEO) Warren Buffett is a prominent contrarian investor who famously said, “Be fearful when others are greedy, and greedy when others are fearful”. This is one of his most famous quotes and sums up his approach to contrarian investing.1
Give me an example?
At the height of the 2008 financial crisis, when markets were tumbling amidst a wave of bankruptcy filings, Buffett counseled investors to buy American stocks. As an example, he purchased equities for American companies, including investment bank Goldman Sachs Group, Inc. (GS).2 Ten years later, his advice proved to be correct. From 2008 to 2018, Goldman’s stock had jumped by approximately 239%.3
Investing in a recession
For the record, it feels like we may be in a mild recession although the National Bureau of Economic Research has not said we are. The unofficial rule of thumb states we are already in recession – having experienced two consecutive quarters of negative GDP growth.
Sergei Klebnikov, a staff writer for Forbes.com writes “The S&P 500 surprisingly rose an average of 1% during all recession periods since 1945. That’s because markets usually top out before the start of recessions and bottom out before their conclusion. In other words, the worst is over for stocks before it’s over for the rest of the economy. In almost every case, the S&P 500 has bottomed out roughly four months before the end of a recession.” Those who invest in stocks during a recession can be considered contrarians.
- Berkshire Hathaway Inc. “Chairman’s Letter – 1986
- Berkshire Hathaway Inc. “Chairman’s Letter – 2008
- Investopedia / Yahoo Finance. – Historical Data
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly.
Investing involves risk including loss of principal.
No strategy assures success or protects against loss.
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