SUPERMICRO. BUY WHEN THERE'S BLOOD IN THE STREETS.
This seems to be the credo of contrarian, or counter investing.
Nathan Rothschild, a 19th-century British financier and member of the Rothschild banking family, is credited with saying:
“The time to buy is when there’s blood in the streets.”
Whether or not Rothschild actually uttered this famous line, it reveals an important truth about betting against market psychology. When prices are falling and markets are shaky, bold contrarian investing can yield big returns.
Key Takeaways
👉 Contrarian investing is a strategy that goes against prevailing market trends or sentiment.
👉 The idea is that markets are subject to herd behavior, fueled by fear and greed, which causes markets to periodically overprice or underprice.
👉 “Be fearful when others are greedy, and be greedy when others are fearful,” said Warren Buffett. This phrase embodies a similar philosophy, perhaps just in a slightly more succinct form.
Historically, market panics can be a great opportunity for cheap investing.
Most d̶u̶m̶b̶a̶s̶s̶ ̶ people want to have ONLY WINNERS in their portfolios, but as Warren Buffett warned, “In the stock market, you pay a very high price for a happy consensus.”
In other words, if the crowd is unanimous in agreeing on an investment decision, it’s probably NOT A GOOD ONE.
Going Against the dumbass Crowd
Contrarians, as the name suggests, try to do the opposite of the crowd. They get excited when a good company’s stock price drops sharply and unfairly. They swim against the tide and assume that the market is usually wrong at both extreme lows and highs. The more prices fluctuate, the more delusional they think the rest of the market is.
Contrarian investors believe that people say the market is going up when and why they are fully invested and have no further buying power.
At that point, the market is peaking and should be going down. When people predict a decline, they are already sold out, and at that point, the market can only go up.
For this reason, contrarian thinking is great for figuring out whether a particular stock has actually bottomed.
Bad times build wealth
😬 Contrarian investors have historically made their best investments during times of market turmoil. During the 1987 crash (also known as Black Monday), the Dow Jones Industrial Average in the US fell 22% in one day.
😬 During the 1973–74 bear market, the market lost 45% in about 22 months.
😬 The September 11, 2001 attacks also caused the market to fall significantly.
I AM CERTAINLY NOT AN ADVOCATE OF VIOLANCE
But the list of facts goes on and on. And these were the times when contrarians found their best investments.
😬 The 1973–1974 bear market gave Warren Buffett the opportunity to buy a stake in the Washington Post Company, an investment that subsequently rose more than 100 times its purchase price. That’s before dividends.
Buffett said at the time that he was buying the company’s shares at a deep discount, as evidenced by the fact that the company could “sell (the Post’s) assets to any of 10 buyers for at least $400 million, probably considerably more.” more." Meanwhile, the Washington Post's market cap at the time was just $80 million. In 2013, the company was sold to Amazon CEO and founder Jeff Bezos for $250 million in cash.
😬 After the 9/11 attacks, the world stopped moving for a while. Let's say you were investing in Boeing (BA), one of the world's largest commercial aircraft makers, during that time. Boeing's stock bottomed out just a year after 9/11, but since then, it has more than quadrupled in the next five years. Clearly, while 9/11 may have temporarily soured market sentiment on the airline industry, those who had done their research and were willing to bet on Boeing's survival were well rewarded.
😬 Sir John Templeton ran the Templeton Growth Fund from 1954 to 1992, when he sold it. For every $10,000 invested, into an A-share fund in 1954 would have grown to $2 million by 1992 with dividends reinvested, or an annual return of about 14.5%.
Templeton was a pioneer of international investing. He was also a serious contrarian investor, buying into countries and companies when, according to his principle, they reached their "POINT OF MAX. PESSIMISM."
Four years later, he sold the stock for a huge profit.
The Risks of Contrarian Investing
While the most famous contrarian investors bet big money, went against the grain, and succeeded, they also did a lot of research to make sure the crowd was wrong.
So when a stock takes a big dive, it doesn't prompt the contrarian to place an immediate buy order, but to figure out what caused the stock to fall and whether the price drop is justified.
Knowing which distressed stocks to buy and sell once the company recovers is a major concern for contrarian investors. This can lead to stocks that deliver much higher returns than usual. However, being overly optimistic about hyped stocks can have the opposite effect.
Final Points.
👉 While each of these successful contrarian investors has their own strategy for evaluating potential investments, they all have one thing in common: they let the market give them deals instead of chasing them.
👉 What's next for Supermicro stock? Who knows, who knows..
It's very individual and depends on what you're looking for... opportunity or denial.
👉 The current 6-month return on investment in Supermicro stock is -58.44% - a pretty rare occurrence for SMCI.
This has never happened before.. even in times of WFC, Covid-19 or smth else.
Indeed, several times 6-months returns were quite negative for SMCI. Then Supermicro shares doubled or even tripled in price in just several next years.
What principle and style of investing do you adhere to?! Please share your comments and feedback in the box below! 👇👇
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