On being a contrarian
Question: What does it mean to be a contrarian and does it always pay off?—asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph and Facebook.
Answer: Investopedia says contrarian “is an investment style that goes against prevailing market trends by buying poorly performing assets and then selling when they perform well. A contrarian investor believes the people who say the market is going up do so only when they are fully invested and have no further purchasing power. At this point, the market is at a peak; when people predict a downturn, they have already sold out, at which point the market can only go up.”
There have been successful contrarians.
Investment U.com identifies six of them, namely: Jim Rogers, Marc Faber, John Templeton, Sam Zell, Eduardo Elsztain and George Soros.
While the list may not be definitive, there is one name in that list that stands out and that is George Soros. In a trade that earned Soros the moniker “the man who nearly broke the Bank of England,” Soros borrowed a billion US dollars worth of British pounds and then converted the pounds to German marks. This was done at a time when the British economy was doing poorly.
As the British pound began to drop in value, Soros started to convert his German marks back to the now lower valued British pounds to repay his loan. On the first day of his strategy, he already earned $1 billion. And by the time Soros had fully unloaded his British pound position, he had earned nearly $2 billion.
While the contrarian strategy may be simple, it involves a huge amount of risk taking with large positions. Suffice it to say that contrarian investing is not for the faint-hearted.
So, is that the end of it? Will the average investor be stuck with the drab and unexciting buy and hold strategy?
Few people know that there is only one contrarian strategy that is fully guaranteed. In fact, while all investments in the world bear risk (e.g. price, inflation, reinvestment, geopolitical risks, etc.), this contrarian strategy is absolutely without risks.
The contrarian strategy is to give.
Focusing on earning money merely results in greed. But if you were to give first, cheerfully, faithfully, wisely and quietly, you will never fall short of money. For it is written in Luke 6:38, “Give, and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you.” And the best thing is that it is in the intention and not the size of the giving that matters.
All of my business partners and I are witnesses to the power of giving first. Try it and for sure you will see that while you may not turn out to be as rich as George Soros, you will nonetheless earn all the money that you will ever need.
