Contrarian’s Dilemma: Glass Half Full

September 30th, 2008

As everyone panics, this may be the perfect time to buy assets and invest - when investments are at a discount to their underlying value. As far as I’m concerned, any large market decline is just an opportunity to buy quality assets at a discount. It’s bargain hunting time for investors! You have to view times like these as nothing more than an opportunity. If you don’t view times like these as an opportunity, you run the risk of turning into a pessimist who will not only act irrational (like some people who sell great companies for a fraction of what they bought them for just because the price went down and despite the fact that the company still has great fundamentals - does that make ANY sense?) but may miss many opportunities to make back the money that has been lost thus far.

A contrarian likes to do the opposite of the masses. As the masses have been selling, I’m sure there are plenty of contrarians slowly buying assets. The true dilemma for a contrarian is knowing when to buy and invest. A person only has so much cash on hand to take advantage of opportunities. I don’t believe the market is at the bottom at the moment - and that is the true dilemma. Should I wait for the prices to drop some more before investing or invest now? My inclination is to slowly invest all the way down. I’m not perfect and I make mistakes, so my best bet is to buy slowly all the way down.

The Sub-Prime crisis created our current economic woes. The Sub-Prime crisis was created by Democrat legislation that required (YES, REQUIRED) banks to lend to people that could not afford them. The program started under the Clinton administration and was accelerated by the Democrats in the last several years - post Dot Com Bubble Bust. In fact, Obama was involved in a lawsuit against CitiBank because he claimed it did not lend enough money to African-American neighbourhoods. So, in essence, he got his wish. The banks were being sued for not lending enough sub-prime mortgages. I dislike Bush as much as anyone, but little do you know, he tried to implement legislation to regulate the banks and prevent this crisis several years ago. The legislation never passed. Go figure.

As the banks began lending to literally anyone, the masses of people all had these large sums of money to go buy their dream homes. The real estate industry boomed. When people buy homes, they are spending a big chunk of the money they will earn over the next thirty years. When millions of people buy during a short period of time, a boom is created. Due to the lending practises imposed on the banks, the boom began. Artificial booms always lead to big busts. That is what we are witnessing now. I haven’t told you anything you didn’t already know, especially since I wrote an article about that a long time ago.

So here’s the bad good news. Many of these sub-prime mortgages haven’t even come due yet. I’m almost 100% sure that we are in store for a rough ride for the next 3 to 5 years. So as many people panic and sell their investments for a song (glass half empty syndrome) and as your investment accounts witness sharp declines, the smartest investors will be looking to buy and invest more of their money into great companies for peanuts. Yes, the next 3 to 5 years will present many great buying opportunities. So be on the lookout! Next time someone starts talking about the grim economic situation and their investments, just remember all the opportunities on the flip side - The glass isn’t half empty, it’s half full. Happy Investing!

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