A Value Investing Blog

Posted on 02 Mar 2017 by Daniel Mueller

Bears, Bulls and Barbecues

Bears, Bulls and Barbecues


Want to know what a pretty picture looks like in the eyes of a contrarian investor? Today’s Australian Financial Review (AFR) provides the answer. For those who have a hard copy, turn to page 15 of today’s edition. There are three very bearish articles on three different asset classes, Australian stocks, global stocks and Australian bonds. All three quote experts in their field, forewarning investors that all three assets classes are to be avoided, at least for 2017. And if you flick through the pages there are some very bearish articles on the banks and Telstra (TLS). So why am I not partaking in the gloom and doom?

It’s important to realise that the media is society’s barometer for sentiment. And in the world of investing, society is the herd. Us contrarians like to move against the herd as it is usually proven wrong over time. Why? The herd chases momentum. It can cause exponential price rises in stocks with a good story but often unproven or unsustainable business model. Just look at the share price charts of Bellamy’s (BAL) or Sirtex (SRX) in recent times.

On the other hand, the herd won’t touch stocks that are out of favour at cheap prices. Our investments fall into this category.

There are always bulls and bears in the investing world but in today’s AFR the bears are out in force.

Market peaks are accompanied by euphoria, not gloom and doom. And there are no bears to be found. As a fund manager, I know the top is near when I get asked for hot tips at barbecues. I’ve rarely been asked for a hot tip since 2007. Perhaps I haven’t been invited to enough barbecues.

The barbecue conversations are accompanied by very bullish articles in the media. These are usually located beyond just the business section of newspapers. They often make front page news and appear on the front cover of esteemed journals. There are certainly no articles like those in today’s AFR at market tops.

My view is that the market is by no means cheap. But it is not overly expensive either. And so long as bearish articles appear in the media, the bull market should have further to run.

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9 thoughts on “Bears, Bulls and Barbecues

  1. I think your rticle is a good one – I agree with the message and yourreasoning behind it.
    However, I think you have probably chosen the wrong stocks to use as examples of either un-proven or un-sustainable business models – neither Bellamys or Sirtex fits with these terms, rather they had simply run much too fast, particulary Bellamys (and Blackmore among others).

    To lavel Sirtex as having an un-proven (orun-sustainable) business model is simply wrong.

  2. Your reasoning is very sound and history often repeats. The BBQ and taxi driver analogies are often used. “It’s different this time…. ” is another good signal. However, we need to be ever vigilant to signals that history isn’t repeating itself by morphing slightly.
    Enjoy reading your perspectives and insights.

  3. A pair of journalists hardly comprises a herd, and both journos were talking about things that I would consider closer to noise than to signal.

    However, be that as it may, this blogpost illustrates the difference between contrarianism and independent thought very well.

    Contrarianism is an excellent foundation for solid outperformance and indeed it is vastly easier to achieve than effective independent thought. There is certainly nothing wrong with it.

    Independent thinkers have a much wider dispersion of returns than contrarians from the ‘tin cans and ammunition’ extremist goldbugs (who basically make nothing) to the Buffetts, Klarmans, Burys, Jobses and Gateses of this world.

    For what it is worth, I believe that whether motivated by signal or noise, the bears of 2017-2019 are going to look very prescient at some point in the future.

    • ‘the bears of 2017-2019 are going to look very prescient at some point in the future’

      Funniest thing I’ve read all week, thanks.

      The bears will be right, eventually, of course… In the meantime, the contrarians will buy well selected stocks (via independent thought) when things are bearish and offload them just as those BBQ tips are sought by Joe average.

  4. Certainly agree with the sentiment of the article, but I don’t think that this anecdote is a true indication of current marlet sentiment. The investors intelligence survey is currently showing more bulls and less bears than 2000 or 07 , s&p 500 median stock is at an all time record and margin debt is near inflation adjusted highs. Add in record optimistic economic surveys from the Trump Economic Miracle and things seem fairly euphoric to me. Not a timing tool obviously though.
    How does your view sit with some of the US numbers Daniel?

    • The investors intelligence survey was a great contrarian sentiment indicator that I used to follow years ago. It came close to picking the bottom in 2009 and the short term tops in 2010 and 2011. Then in about 2012 CLSA started re-publishing it with great fanfare as though they had found a crystal ball. It hasn’t worked very well since. Traders using this indicator would have missed the bull run from 2013 to 2015. Like all investing tools or methods, if too many people start using them, they become an instrument of the herd and stop working.
      The US has more than tripled off its 2009 lows and hit its all time high four years ago, so it’s not surprising sentiment is stronger there.
      Steve and the international team are finding it harder to identify opportunities in the US than anywhere else.

      • Yes of course. A survey like that could never be a one stop sentiment shop, but as one tool in a toolkit is useful for “taking the market’s temperature” as Howard Marks has put it. I guess in terms of missing a potential rally, it’s not a binary decision of 100pc stocks or cash, but a blend that could help an investor sleep at night but still share in some of the upside. Also I’m assuming that regardless of how the survey is used, the people answering it are still being honest so it still compares to some historic bubble peaks.

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