Contrarian investing near market tops

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Stock market positive forecast financial concept and contrarian individual financial symbol as a courageous bull running in the opposite direction of a group of bears as an investing trend symbol.“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is.” — Warren Buffett, the Oracle of Omaha.

Overview: Investing near or at market tops is a skill worth having. Is it time to revisit your approach?

Well, this is a pleasant surprise. Many stock market indices are hovering either at or near the top.

Nearly six weeks ago practically all stocks were getting their wings clipped.
Suddenly, interest in stocks has soared to lofty heights well above the clouds.

The question becomes “how does one invest in stocks now that most people are interested?” Something we have not had to contemplate for about a year.

My view is that contrarian strategy delivers rewards in the long run. Risk is ever present; however, emphasis on quality investments tames the turmoil.

Contrarians know that bulls and bears can swap chairs abruptly with little or no warning.
Contrarians are content with either market direction.

I highlight contrarian investing for both advancing and falling markets:

  • First step as stocks advance is to consider selling a small position of the winners.
  • Notice that I said “small” and “winners.”
  • If stock markets continue to advance, sell more small amounts of the winners.
  • When markets retreat, buy some quality investments that few are interested in.
  • If those pesky markets keep on dropping even further, buy more small positions at lower prices.
  • Do make sure that you don’t need the money you invest for at least 5 to 10 years.
  • Having an established asset mix makes your investing easier.
  • Contrarian investing uses targets set in your game plan.

Why this approach makes sense:

  • You control the process of when to buy, sell and how much.
  • There is no need to outsmart the markets.
  • You become skilled at taking small profits.
  • Knee-jerk reactions are not necessary.
  • It is a counter intuitive strategy that works.
  • Everyone can implement it.

When stock prices climb, contrarians sell some.
Conversely, when stock prices slide, contrarians buy some.

You don’t have to act every time the markets gyrate up or down.
Having some ready-cash makes this process more seamless.

Contrarian investors are very patient investors.
They happily zig when others zag.

That strategy takes some getting used to.
A series of small steps helps establish your personal discipline.

AdrianAdrian Mastracci, MBA,  is president and portfolio manager for Vancouver-based KCM Wealth Management Inc., specializing in designing and stewarding retirement portfolios.

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