Hey Guy, Not Everything is a Contrarian Indicator

by Johnny Debacle

Lately, we’ve witnessed a trend towards an increasing an amount of things being hailed as Contrary Indicators. Recent examples include the cover of the Economist (cover says “Wall Street: A Ten-Page Report on the Crisis), the Bearishness of analysts, our own Time Barrons Investing Thesis and the list goes on. Here’s a news flash — almost nothing is actually a contrarian indicator. That’s right. Easy to assume, difficult to prove. Most things are just noise. Just preemptively, here is a list of things that are not contrarian indicators.

  • Everyone saying it’s a bottom
  • Everyone saying it’s a top
  • Everyone saying they’re a top
  • The fact that the Democratic party has been labeled a shoe-in to win the Presidency
  • A comet hitting the earth (“time to go long solar energy!”…idiot)
  • The US winning a Gold in Karate Chops at the Olympic Games this summer
  • Everyone agreeing that dragons really do/did exist
  • And lastly, everyone thinking that we are not at risk from squids (we invest in squids on their fundamental merit, not because they are a contrarian play)
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  1. To The Hilt
    March 27th, 2008 | 2:22 pm

    What if this article is itself a contrarian indicator?

    Then everything is, in fact, a contrarian indicator. The markets operate inefficiently, as people incorrectly digest information, which may or may not be disinformation, and decide to buy and sell, in error, therefore establishing a market price which is itself wrong. The erroneousness of market prices explains why prices are always moving to new faulty prices no more or less mistaken than those precedent.

    Does it surprise you then, that the efficient markets hypothesis is obviously invalid?

    This is on the Level IV CFA exam. You have to get the question wrong to pass.

  2. March 27th, 2008 | 2:32 pm

    Honestly, while JD was writing this, I was loading up on contrarian indicators becase they are about to go through the roof.

    That comment was brilliant.

  3. Billa
    March 27th, 2008 | 4:01 pm
  4. Cal
    March 27th, 2008 | 10:58 pm

    Magazine covers are the original contrary indicator. Well, maybe the second contrary indicator after that shoe shine boy in 1929.

    You might want to read up on Paul Macrae Montgomery. He wrote the book on magazine covers as contrary indicators. Actually, it was just a paper. And it was likely published before you were born. Nonetheless, historical perspective is a good thing.

    Here’s his website, though I don’t see that paper listed.

  5. Andrew
    March 28th, 2008 | 4:42 am

    The syllabus for CFA level V outlines Schrodinger’s market uncertainty principle. which I think is well worth considering.

    This states that the market is both efficient and inefficient at the same time to the outside observer. It is only by investing, and therefore becoming the cat, that one discovers if it is actually efficient or not.

    You go into the exam with a geiger counter, if the uranium atom decays, you pass. But die.

  6. Jag
    March 28th, 2008 | 6:43 pm

    For CFA level VI, you have to literally fight the Fed. No one has passed yet.

  7. December 1st, 2012 | 5:54 am

    We often call him by his nickname.Is it yours? Don’t trust to chance!There is hope so long as he is with us.What a pity!He glared at Bill, ready to teach him a lesson.He glared at Bill, ready to teach him a lesson.That’s a terrific idea!I’m full.The teacher tested us in English.