Being Contrarian

Sometimes, an equity is so beloved that there’s no one left to buy it. I’m looking at you, late-2012 AAPL. I’m also looking at YOU, priceline.com, with your 97.8% institutional ownership.

This chart will keep updating itself so that I can come back in a few months and see how wrong I was.
This chart will keep updating itself so I can come back in a few months and see how wrong I was.

Deep thoughts from S&P Capital IQ Chief Equity Strategist Sam Stovall: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

In 2012, the best-performing sector was Financials. In prior years, everyone hated real estate and bank stocks so much that they couldn’t possibly hate it any more.

In 2013, the best-performing industries were Semiconductor Memory and Solar. We’ve been bearish on solid-state anything since Solyndra died in 2011.

When all the experts and forecasts agree, something else is going to happen.

If you bought the 10 stocks in the S&P 500 with the most sell ratings at the beginning of the year, equally weighted, you would have been up 75% YTD. If you bought the 10 stocks in the S&P 500 with the most analyst buy ratings, you would have only been up 22%.

Wanna play this game again next year? Here are the least-recommended stocks in the S&P 500 right now:

    Comerica (CMA)
    Deere & Co (DE)
    Exelon (EXC)
    Progressive (PGR)
    Bemis Co (BMS)
    Consolidated Edison (ED)
    Harris Corp (HRS)
    Hospira (HSP)
    Paychex (PAYX)
    People’s United Financial (PBCT)

The worst-performing industries this past year have been Industrial Metals & Minerals, Latin American Banks, and Residential REITs. If you’re a contrarian, go nuts and buy gold and investment-grade bonds, because the crisis isn’t over AHHHHHH. Scale back on U.S., European, and Japanese stocks. Increase exposure to emerging markets, especially Brazil.

A contrarian is, by definition, fighting the market. You cannot do this all the time unless you enjoy being wildly wrong.

Disclosure: I am long ARLP and BTU.

See Also:
Let Fear Be Your Friend in the Market –Forbes

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