As we wrote last week, sentiment for Malaysian stocks was bearish in the run-up to the 15th general election, underperforming US and regional markets (see “We expect long-dated bonds to outperform equities in the near term”, The Edge Singapore, Issue 1063, Nov 28). As uncertainties over the formation of Malaysia’s next government persisted after inconclusive results, some analysts called for investors to continue selling the market. No worries, as these analysts shall remain unnamed. But, it creates, we believe, the perfect setting to be the contrarian. We think much of the negative surprises would have already been priced into the market — hence making for an attractive risk-reward proposition. As such, we invested all of our cash in the Malaysian Portfolio. Some will be shorter-term trades than others, for obvious reasons.
It makes sense to follow the advice of those who are right more often than wrong. This is why stock-market participants the world over regularly parse regulatory filings from Berkshire Hathaway, the conglomerate run by Warren Buffett, one of the most successful investors and wealthiest people in the world. The disclosure of a stake increase or decrease usually triggers sufficient interest from other investors as to materially move the stock price. Case in point: Taiwan Semiconductor Manufacturing Co gained more than 10% immediately after Berkshire announced that it had bought US$4.1 billion (S$5.6 billion) worth of shares in the Taiwan-based chipmaker in mid-November.
Conversely, you can also profit by doing the opposite of those who are wrong more often than right. The truth is, too many market analysts and commentators have taken to modifying their narratives to fit market movements of the day, thereby offering little useful insights for investors. Notably, Buffett is a famous market contrarian. One of his most oft-repeated advice is to be “fearful when others are greedy, and greedy when others are fearful”.
