Discount Against the Herd: 6 Contrarian Investment Strategies You Should Follow Review
Q&A with Author Steve Cortes
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The Native Americans of the Old West used a brutal but effective method for hunting buffalo known as a "buffalo jump" wherein they would whip the animals into a frenzy and corral the galloping herd toward a cliff. The buffaloes would unwittingly follow the herd right off the cliff to their death. Well in 21st Century America, in many ways Wall St. is the pack of hunters and investors have become the buffaloes. Sadly too many investors have blindly followed the Street's conventional "wisdom" and plunged into a world of insane volatility and a lost decade of equity investing for which most investors are very ill suited. Moreover, social media is exacerbating this herd mentality, as Facebook and Twitter can form mass opinions with amazing rapidity, often to the detriment of the careful investor.
How do the suggestions in your book differ from those of other investors out there?
The foundational suggestion from Against the Herd is to maintain a healthy skepticism and stand willing to think critically. What is the motivation of those dispensing advice? What is the self-interest of the "experts" and the financial media? If an investor is willing to truly think, and to believe and act in unpopular ways, then he can effectively protect and grow capital without the unsettling roller coaster that has marked financial markets in recent years. Whether or not the reader agrees or not with my counter-trend theses, I hope I can, at the least, inspire readers to cast an insightful, discerning eye on their world and financial markets.
Why would someone want to invest against the herd?
Because the herd is so often wrong! Not always, of course. In 1992, the Dream Team basketball squad was universally expected to reclaim basketball glory for the United States at the Barcelona Olympics, and indeed they did. The herd is not always wrong. Bu the herd is wrong often enough, and by a wide enough margin, that those willing to bet against hysteria can both protect capital and reap outsize rewards. In the last decade, investors who resisted the Tech bubble and eschewed too much Housing exposure, for example, have far outperformed the typical investor. Group-think is dangerous and should be scrutinized carefully.
What do you suggest investors keep in mind regarding global markets?
The number one longer term trend I think every investor should at least consider is the relative youth of America's dominance. My book is not all bad news. I do see serious dangers abounding, particularly in China. But long term I also see opportunity, and it is right here in America. As Wall St. almost exclusively points to Emerging Markets as the source of future growth, I instead see a mania there, reminiscent of the Tech bubble. And the flip side to that dangerous focus on Emerging Markets is an under-appreciation of the long term attributes that nearly assured America's dominance for the rest of this century - economically, politically, culturally, and militarily. Of all my contrarian beliefs, this long term confidence in the American model, largely because of our superior demographics, stands as my most important thesis.
What one piece of advice would you give today’s investor?
I advise investors, except for the truly wealthy, to limit their exposure to equities, and to particularly limit their exposure to equities dependent on emerging markets. I believe most people should - and will - return to an investing climate more akin to that our grandparents' days, investing primarily in bonds. A blend of Treasuries, Corporates, and select Municipals should form the majority of a typical investor's holdings. More than anything, I encourage them to think. Think! is the one-word motto of one of America's most successful capitalists, Thomas Watson who built IBM, and it is still terrific advice.
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