Seth Klarman on contrary investing

Generally, the greater the stigma or revulsion, the better the bargain.

~ Seth Klarman

Steven Leuthold on being a contrarian

I am contrary but not for the sake of being contrary.  It’s good business.  When everybody hates something, we buy it.  When everybody loves something, we sell it.  There is a warm comfort in being part of the herd.  But I can live without it.

~ Steven Leuthold, 1937-2023

Joel Tillinghast on independent thinking

On the whole, students with high grade point averages achieve them through curiosity and diligence, but it's also possible to get high marks by gaming the system, sucking up to professors, and regurgitating whatever they want to hear.  In investing, where doing nothing often prevents blunders, a certain style of laziness is adaptive, but mental laziness isn't, and not thinking independently is absolutely toxic.  The entire game is about figuring out what others have missed.  The largest prizes go to those who think differently and correctly.  Some investing ideas will look stupid or crazy, and a few will be, but the alternative is mediocrity.  Depending on the results, you will be called courageous, or arrogant and foolhardy.  Don't be ashamed of error, only of failing to correct it.

~ Joel Tillinghast, Big Money Thinks Small, p. 41

Eric Johnston on using the unemployment rate as a contrary indicator

If you look at the past selloffs in the market, they've all started with a very low unemployment rate.  So February of 2020?  That was a 50-year low unemployment rate.  2007?  That was a 6-year low unemployment rate.  In the bubble of 2000, everything felt great in February of 2000.  We were at a 30-year low unemployment rate.  Things felt great and then... things completely fell apart.  So in the beginning of these things, there's a sense of complacency that goes where "maybe we can get through this."  But the reality is, is that it always feels this way in the beginning.  We go in cycles and I think over time, if you sold a 3 1/2% to 4 1/2% unemployment rate and you bought a 10% unemployment rate, you would do very well.  And right now we are towards the end of the cycle, and whether the cycle ends in 2023 or '24, it's probably on its last legs.

~ Eric Johnston, Cantor Fitzgerald, CNBC interview with Scott Wapner, 2:20 mark, January 18, 2023

Jim Grant on about imagining the future and thinking apart from the crowd

Just as markets are about the future, if you can't know the future you must contribute something to the difficult but necessary job of imagining it.  You can dogmatize about it.  You can conceive a view of it based upon the alignment of forces in the present, about the way people themselves are expecting the future to unfold.  If everyone thinks one thought, you have an edge, because you can investigate the alternative, because often as not the idea that's most popular is the least remunerative - not always, but often.

~ Jim Grant, interview with William Green, 29:20 mark, August 20, 2022

Ben Claremon on being a contrarian investor

So much of being a good investor is being a contrarian...  To be a good contrarian you have to be willing to hold your position in the face of news that is not particularly good, because that's how you make a lot of money.

~ Ben Claremon, interview with The Accent Podcast, 43:00 mark, September 18, 2020

Joel Tillinghast on the traits needed to be a great investor

Investors often don't realize that there is a hidden cost for everything that normal persons desire: action, excitement, fun, comfort, social acceptance, popularity, and social exclusivity.  There's also shadow income from patience, boredom, worry, courage, pain, loneliness, being a nerd, and looking like an idiot.  The most expensive emotions are seeking comfort and panic, which induce unplanned purchases and sales.

[...]

Almost by definition, the biggest mispricing will involve a glaring, hideous defect that popular opinion thinks cannot be overcome.  That's when your lonely, preferably well-researched conclusion that it either can be resolved, or isn't so bad, will be rewarded.  In principle, we would always buy understandable, well-run, durable franchises at bargain prices, but in practice the market must think that some element is missing.  On average, you are being paid for being a nerd and sorting out the true situation.  Even more, you are rewarded for the courage to act on an unpopular opinion that made you look like an idiot, provided it turns out to be correct.  Before then, there's endless pain and worry that, indeed, the crowd is right.

~ Joel Tillinghast, Big Money Thinks Small: Biases, Blind Spots, and Smarter Investing, pp. 23-26

Bart Borsky on getting good career advice

The University of Pittsburgh was home to the largest liver transplant program in the world at the time, due in large part to the leadership of Dr. Thomas Starzl, the great pioneer in that field. During my residency in anesthesia, I did additional training in liver transplant anesthesia, taking advice from Dr. John Sassano, who told me that if I wanted to be successful, I needed to figure out what people in my field didn't like to do, learn to love it, and make myself available. 

~ Bart J. Borsky, M.D., Passing Gas and Getting Paid For It: The Musings of a Comic Anesthesiologist, pp. 14-15

Jack Schwager on contrarian trading based on the word "despite"

One of the traders I interviewed, a fellow by the name of Jason Shapiro, is a real contrarian trader. One of the most useful things he said in that interview was his favorite word is "despite." "If you ever see the market went up today despite this news," he said, "that's a really bullish signal." Because when they can't even even explain why the market - they have to explain it went up despite opposite news, that itself is telling you something.

~ Jack Schwager, "Secrets of the Market Wizards with Jack Schwager," Stansberry Investor Hour, December 3, 2020

Bob Farrell on crowd behavior

When all the experts and forecasts agree, something else is going to happen.

~ Bob Farrell

Kevin Duffy on investing

Investing: Fish where the fish are and the fishermen aren't.

~ Kevin Duffy

Wildlife Conservation
1956

Benjamin Graham on the intelligent investor

The intelligent investor is a realist who sells to optimists and buys from pessimists.

~ Benjamin Graham, The Intelligent Investor

Howard Marks on contrary investing

Large amounts of money aren’t made by buying what everybody likes. They’re made by buying what everybody underestimates.

~ Howard Marks

Kevin Duffy on the track record of "experts"

There is no human progress without the heretics who question prevailing wisdom. As Malcolm Forbes once said, “Conventional wisdom seldom is.”

History is littered with “experts” getting it grossly wrong.  For example...

The Wright Brothers came out of nowhere to invent the airplane:

"Heavier-than-air flying machines are impossible."
~ Lord Kelvin, Royal Society, 1895

Geologists have been worrying about Peak Oil a long time:

"The peak of [American oil] production will soon be passed – possibly within three years."
~ David White, Chief Geologist for the U.S. Geological Survey, 1919

"The energy future is bleak and is likely to grow bleaker in the decade ahead."
~ James Schlesinger, first Secretary of the U.S. Department of Energy, 1979

Industry leaders, economists, bankers, politicians and business media failed to foresee the 1929 crash:

"Stock prices have reached what looks like a permanently high plateau."
~ Irving Fisher, October 16, 1929

"It may be well again to stress the all-important point that the Federal Reserve has it in its power to change interest rates downward any time it sees fit to do so and thus to stimulate business."
~ The Financial World, April 10, 1929

Before WWII, fascism held a strong appeal among elites:

"It would be a dangerous folly for the British people to underrate the enduring position in world history which Mussolini will hold; or the amazing qualities of courage, comprehension, self-control and perseverance which he exemplifies."
~ Winston Churchill, 1938

“Military intelligence” has a well-deserved reputation for being an oxymoron:

"No matter what happens the U.S. Navy is not going to be caught napping."
~ Frank Knox, Secretary of the Navy, December 4, 1941

The economic geniuses failed to see the inflation of the 1960s and 1970s coming:

"In all likelihood world inflation is over."
~ Per Jacobsson, IMF Managing Director, 1959

Technologists underestimated the digital revolution:

"I think there is a world market for maybe five computers."
~ Thomas Watson, chairman of IBM, 1943

"Computers in the future may weigh no more than 1.5 tons."
~ Popular Mechanics, forecasting the relentless march of science, 1949

"640K [of memory] ought to be enough for anybody."
~ Bill Gates, 1981

In the 1970s, climatologists thought the biggest risk was global cooling:

"We simply cannot afford to gamble... by ignoring it. We cannot risk inaction. Those scientists who say we are merely entering a period of climatic instability are acting irresponsibly. The indications that our climate can soon change for the worse are too strong to be reasonably ignored."
~ Lowell Ponte, The Cooling (1976) 

As late as the 1980s, mainstream economists lauded the Soviet economy even as it was coming apart at the seams:

"Those who think the Soviet Union is on the verge of economic and social collapse are kidding themselves."
~ Arthur Schlesinger, Jr., Establishment historian, 1982

"The Soviet Union is not now nor will it be during the next decade in the throes of a true systemic crisis, for it boasts enormous unused reserves of political and social stability."
~ Seweryn Bialer, Sovietologist, Columbia University, Foreign Affairs, 1982

"What counts is results, and there can be no doubt that the Soviet planning system has been a powerful engine for economic growth. . . . The Soviet model has surely demonstrated that a command economy is capable of mobilizing resources for rapid growth."
~ Paul Samuelson, Massachusetts Institute of Technology, Nobel laureate in economics, Economics, 1985 edition of his widely used textbook

The financial experts failed to identify the Japan bubble of the late 1980s:

"At the rate things are going, we are all going to end up working for the Japanese."
~ Lester Thurow, MIT economist, 1989

After 911, the defense experts were convinced Iraq had WMDs and the Iraqi people would welcome American soldiers with open arms:

"My belief is we will, in fact, be greeted as liberators... I think it will go relatively quickly... weeks rather than months."
~ Vice President Dick Cheney, March 16, 2003

In 2007 (before the 2008 financial meltdown) central bankers felt the subprime lending collapse was contained:

"At this juncture...the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."
~ Ben Bernanke, Federal Reserve Chairman, AFX News, March 28, 2007

In 2020 the Davos elites predicted the business cycle was dead and environmental Armageddon right around the corner:

"The boom-bust economic cycle is over."
~ Bob Prince, Co-CIO, Bridgewater Associates, World Economic Forum, January 22, 2020

"Davos is cloaked in white, but its agenda is green.  Environmentalism - fighting climate change in particular - has emerged as one of the biggest priorities of the World Economic Forum..."
~ Bloomberg Businessweek, January 17, 2020

~ Kevin Duffy, January 24, 2020

Rob Arnott on investing

There's no such thing as a bargain in the absence of fear.

~ Rob Arnott, Research Affiliates, Grant's podcast, June 21, 2019

John Templeton on the stages of a bull market

Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.  The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

~ John Templeton

Peter Atwater: headlines "on the front page always confirm the bias of the reader"

When somebody picks up The Wall Street Journal, the Financial Times, whatever they do - and you can do it online - is to step back and say, as you're reading these headlines, "why are they here?"  "Why are these on the front page?"  And they're on the front page always to confirm the bias of the reader.  It is very, very rare that you'll see on the cover of The Journal, the Financial Times, the New York Times, something that is challenging, that's going to cause the crowd to step back.   What they want is for you to start reading and keep reading from there.  So the front page is telling you, "this is the consensus view."

So often you will have seen a story that a week ago was on page B-18 move to the front page of the B section, to move finally to the front page of the front section.  So that migration is telling you that the  story has legs, that it sticks and that the momentum is now peaking.  I think it's important to recognize that front page acreage is incredibly expensive.  So nothing can last there.  It hits and goes.  So this is the editors capitalizing on the frenzy, and once it's there it's done.

~ Peter Atwater, "Indicators Hiding in Plain Sight," interview with Grant Williams on Real Vision, 17:30 mark

Morgan Housel on the contradiction of the Berkshire Hathaway annual lovefest

Another version of [pluralistic ignorance] is when everyone thinks they’re a contrarian. The heart of pluralistic ignorance is having misperceptions about how others in your peer group think. And that’s usually what happens when you have a view about an investment that you assume isn’t held by a large percentage of other investors. Take the Berkshire Hathaway annual meeting, which is coming up next week. It’s 40,000 people, all of whom consider themselves contrarians. People show up at 4 am to wait in line with thousands of other people to tell each other about their lifelong commitment to not following the crowd. Pluralistic ignorance at its finest.

~ Morgan Housel, "You Played Yourself," Collaborative Fund blog, April 29, 2019

Kevin Duffy: "Warren Buffett is the ultimate crowded trade"

Warren Buffett is the ultimate crowded trade. Every finance major studies him and wants to emulate him.  So perhaps we should look at him as a contrary indicator:

• He doesn’t understand macroeconomics at a time when it really matters. Prepare for the bust phase of the business cycle.
• He hates gold (because he doesn’t understand economics). Own some gold as a hedge against systemic problems.
• He just lost over $4 bil last week on his 25% stake in Kraft Heinz. At the time of the merger in 2015 he said, “This is my kind of transaction, uniting two world class organizations and delivering shareholder value.” Instead, they brought in the financial engineers at 3G Capital and destroyed value. Millennial tastes are changing, but Buffett is stuck in a Cherry Coke time warp.
• He thinks he can cozy up to the political establishment. That worked in 2008, but it could very well fail during the next bear market.

George Orwell on dedication to truth

Being in a minority, even in a minority of one, did not make you mad. There was truth and there was untruth, and if you clung to the truth even against the whole world, you were not mad.

~ George Orwell, 1984