Making Lemonade from Lemons: A Contrarian Approach to Investing

The impact psychology has on investing has been brought out into the glaring light of day by the combination of the economic crisis of 2008 and the more recent crash of May, 2010. Since the end of 2009 the stock market has virtually been at a standstill as Americans are just not putting their faith, and therefore their money, into, what they perceive to be the unreliable world of equities. For four months in a row mutual fund investors have pulled their investments out of equities and putting their money in bonds, and action in the options market are good indications that fears are still quite high that the stock market has not hit bottom yet.Yet, there are other pointers which suggest that equities are a good value at the moment, including good cash flow and dividend yields. The pessimistic mood combined with the good objective indicators send the message to a typical contrarian investor that this may be a great time to buy stocks.The chief investment strategist at Wells Capital Management in Minneapolis James Paulsen sums up the situation succinctly, “Just look at three things: compelling valuation metrics, the sheer fundamentals in some areas like profitability, and this huge disconnect between how people are perceiving things and the reality of how they are.” Paulsen continues, “Therein lies the big opportunity.”To sum up: the signs that investors still feel nervous about the near future of stocks are a compelling reason for a true contrarian investor to bet the farm on stocks.

Alyssa Anderson

Alyssa Anderson has been involved in the world of business on several levels for many years. She was the CEO of a start-up high-tech company until its purchase by a global on-line e-business. Alyssa helped formulate marketing strategies for several other companies as an independent consultant, and she has advised local government on methods to achieve appropriate fiscal responsibility. Her opinions are well known through her many editorials which have been published throughout her career in a variety of local and national print media. She has been heard on radio discussing current issues affecting the business community and Alyssa hopes to bring her special brand of commonsense coupled with uncanny insight into her editorial responsibilities as the Business Page editor for Left Justified. Contact Alyssa at alyssa(at)leftjustified.com.

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