Now’s the Time for Contrarian Investing

|October 3, 2023
Bears and Bull

Have you ever heard of the “Tenth Man Rule”?

I learned about this mental model from one of my investing mentors. It holds that when nine people agree on something, the 10th person needs to take the opposing viewpoint.

I use this technique in the markets daily.

Lately, everywhere I turn, I’m overwhelmed with bearish sentiment.

And when everyone is thinking one way, I usually go the other.

Playing Devil’s Advocate

Whether I’m reading an analyst report or scrolling through Twitter, it’s clear that people are very bearish right now.

And there are some good reasons for that.

Oil prices are back near $100 per barrel. That’s the highest level of the year, and it adds to inflationary pressures…

Brent Crude

U.S. government bond yields have surged to their highest levels in over 15 years…

Treasury Yield

Bankruptcies in the U.S. have also risen. Some 400 corporations have gone under this year… which is more than the full-year totals for 2021 and 2022.

Add on a nationwide housing crisis, a commercial real estate bust and a handful of stocks driving the 2023 bull market… and you can understand why many people are bearish.

Oh, and don’t forget credit card debt is at an all-time high…

Consumer Loans

On the surface, there is plenty to be bearish about.

But dig a little deeper, and you’ll see the situation is less dire than it appears.

Seeing Through the Doom and Gloom

There are always things to worry about in the markets.

Rising bonds yields, high oil prices and student loan debt payments (and thus contracting consumer spending) are high on my list.

But the rest of the issues I listed should mostly be ignored. I have over 500,000 followers on social media. One of the most common messages I get from my audience is about ballooning credit card debt.

It’s true that credit card debt is currently at an all-time high. However, expanding credit is consistent with an expanding economy. So it makes sense that total credit would rise as the economy expands.

What we really need to watch out for is credit card delinquency, which is rising but is only back to pre-pandemic levels…

Delinquency Rate on Credit Cards

Next, while “bankruptcies are on the rise” is an eye-catching headline, it’s not nearly as dire as it seems.

According to Epiq Bankruptcy, which tracks U.S. bankruptcy filings, there have been 15,724 bankruptcy filings so far this year. That’s a 23% increase year over year. Higher interest rates and companies running out of pandemic-era stimulus are likely to blame.

But there’s no need to panic. At this point in 2019 – as the U.S. economy was still expanding – the U.S. had seen 22,483 bankruptcies year to date. Yes, it’s something to monitor… but it’s not a major issue.

Lastly, the housing market is “broken” by most measures. But a 2008-style crash is highly unlikely. While this is an increasingly unaffordable housing market, mortgage delinquencies are currently at an all-time low…

Delinquency Rate on Single Family Mortgages

While the number of houses on the market (i.e., “inventory”) remains muted…

US Housing Inventory

To have a 2008-style crash, you’d need a flood of houses on the market due to delinquencies. And right now the data does not support that outlook.

Think Different… Invest Different

People look at me funny when I tell them things aren’t as bad as they appear.

Whether it’s the housing, labor or stock market, pessimism rules most people’s thinking (I blame social media for this).

But I was taught early on to think differently about the market. If you’re simply going along with what the crowd is doing, you can expect to generate the same returns as the crowd.

And while I certainly have some cash sitting in money market funds right now with yields above 5%, I am also selectively taking on risk.

I’m talking about markets that have been “left for dead,” like SPACs… crypto… and high-growth stocks that fell 90% from their highs.

Most of these assets will never sniff their previous all-time highs. But you only need a few of them to work out to make that part of your portfolio generate sizable returns.

Now is the time to be taking on more risk, not less. We are far from the type of “irrational exuberance” we saw in 2020 and 2021.

That’s why I’m going live with my favorite “smart risk” strategy just a few days from now. At my FREE Breakout Fortunes Summit on Thursday, October 5, at 2 p.m. ET, I’ll share details on a “controversial” way to target rare gains of 10,000% or more in as little as five years.

It’s NOT something you’ll hear about from any Wall Street professional. But I’ll reveal it all at my free event.

Click here to reserve your spot… and I’ll see you there.

Robert Ross
Robert Ross

Robert Ross’s unique style of clear and direct stock research helped him build a massive following in the investment research industry, starting his career at investment research company Mauldin Economics and quickly rising through the ranks to become one of the youngest chief analysts in the industry. Today, over a million investors turn to Ross every month for his take on investing, economics, and personal finance. He now shares his unique insights in Total Wealth and Manward Money Report.