Go against the grain – Breaking free from the herd could be financial

Bruce Brammall, The West Australian, 9 October, 2023

Debt Man

There’s little harder than reprogramming your brain to do what it really doesn’t want to naturally do.

Telling your brain to say “go”, when every muscle in your noggin is saying “no” …  when everyone around you is saying to do one thing, making the decision to swim against the tide … these are tough calls to make.

Of course, the “majority” is often right. But sometimes, obviously, the herd gets it wrong. And right there is where some great opportunities lie.

How do you know when it’s the right time to go against the grain?

You don’t. Well, not with any certainty.

But once you’ve opened your mind to some of them, you’ll start to see the signs. Not quite like The Matrix, but you’ll see what I mean.

Hot pies!

When do you go to get a pie at the footy? If you go at half-time, you’ll spend most of the break waiting in line and hopefully make it back for the start of the next quarter.

If you go two minutes before half-time, you’ll have your pie and a beer and be back in your seat in no time.

The trade-off is between waiting in lines, or missing moments of the footy. I hate waiting in queues.

Similarly, fashion. Do you need to be in the latest season’s gear? Or are you happy to be wearing it in a few months when it’s half price?

Markets tumbling

Which brings us to financial markets.

Stock markets have been tumbling in recent weeks. Australia’s stock market has been trending lower since early September, roughly in line with US markets. Global markets more generally caught the bug a week or so later.

The falls have seen the Australian market hit a low for 2023 last week. It’s far from a rout, but have been consistent enough for nerves to be getting frayed.

The herd is selling. Most days are a sea of red. The headlines are of billions of dollars being lost. The trend is not looking like your friend.

Welcome to that “no” feeling in your head.

How do you make it say “go”?

Contrarian investing

Welcome to what’s known as “contrarian investing”. It’s got some big supporters. I’ll name one – Warren Buffett.

Buffett is famous for his one-line investment quips. Again, we only need one. “Be fearful when others are greedy and be greedy only when others are fearful”.

Contrarian investing is “buying straw hats in winter”. You buy stuff that people don’t want now, knowing there will be a time when they will want it again. Buy it at a discount, knowing that when the time comes, people will be prepared to pay full price.

If you bought “the market” (via an index fund or similar) now, versus in late January or July this year, you’d have picked up pretty much the same stocks at a discount of around 9 per cent.

If you’ve been listening to your friends in recent weeks, or have been watching the market, your mind will be saying: “No. The market is a bad place to invest right now”.

And yes, sure, stock markets could fall further and there’s every chance they will – I’m not trying to call a bottom.

Dinner party conversations

Direct property is a big, slow-moving asset class. Rises tend to go on for a while, as do falls.

With property, sure I like to watch the numbers. But peaks and troughs are easier to figure out by listening in at dinner parties, barbeques or general group conversations.

Over the last 20-plus years, each peak could be called out by how positive those conversations were around property. When some are almost bragging about the performance of their property and the rest are wondering how they get in … you’re at a peak.

Similarly, when property has been falling for a year or more and no-one wants to talk about property, it’s usually a trough.

What are the herds saying?

No-one rings a bell at the top or the bottom of the market to give you “the sign”. And in any case, a better strategy, for those who want to continually invest, is to invest small amounts month in, month out, no matter what the market is doing.

But for those with some experience, getting to know a bit more about contrarian investing can be a rewarding experience.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au.