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Should I be a Contrarian or Go With the Herd?

Gimme Some Truth

This week on Gimme Some Truth, we explored the question: “What is one piece of financial advice you would give your younger self?” Check out our latest episode on iTunes or SoundCloud to see if your answer made it on the show!

Don’t Feed the Bear: Should I be a Contrarian?

The best time recently to buy a vacation home was in 2009, when the shock waves of the Great Recession were in full force.  The safest time to travel was shortly after 9/11.  A vacation was a great bargain in Mexico right after the swine flu.

Going against the current and being a “contrarian” is hard because it flies in the face of human nature to be opportunistic when bad things happen.  In a perfect (investing) world we would just follow Warren Buffett’s advice and “be fearful when others are greedy and greedy when others are fearful”.  

That sounds great, but…

Theory, however, is different from practice.  Speaking from experience, there were no lines of people outside our doors to invest in 2009 as the market was bottoming out.  Furthermore, in the midst of a long bull market run in the U.S. the question we have gotten most in late 2016 and early 2017 is, “should I be taking more risk in my portfolio?”

Timing the market is a futile exercise, fraught with emotional pitfalls and entrapments.  We believe strongly in staying invested in all types of markets.  While we may do some trimming and fixing around the edges of portfolios, we essentially will maintain allocations to match client’s risk tolerance regardless of market conditions.  We feel this gives you the best chance for long-term rates of return rather than trying to time the optimal times to be “risk on” and “risk off”.  After all, the best time to eat Chipotle was right after they cleaned up their food safety processes, right? Sometimes sitting out being a contrarian and going with the herd is the better choice.