Contrarian Investing: The Fearful Market

Warren Buffett, the legendary investor, has famously advised to be greedy when others are fearful and to be fearful when others are greedy. So, if you’ve been closely watching your 401(k) and IRA balances skyrocket this year and are feeling a bit uneasy about the exuberant market sentiment, there’s some reassuring news for you.

The big players in the financial world have spoken, and their skepticism is palpable. Despite the S&P 500’s impressive 20% gain this year, caution still prevails.

This insight aligns with Buffett’s principle and suggests that it may not be time to abandon your greed just yet. It’s worth noting that these observations come from the latest survey of global money managers conducted by BofA Securities, widely recognized as the best monthly publication on Wall Street.

In their latest survey, BofA Securities engaged with over 220 chief investment officers, asset allocators, and portfolio managers controlling a staggering $588 billion in assets. The prevailing sentiment? Skepticism toward this year’s market boom, with many managers choosing to stay on the sidelines.

These managers have slightly increased their exposure to the stock market in recent months but remain significantly underinvested. In fact, their current level of underinvestment is on par with the periods of market panic seen during the Covid-19 outbreak in March 2020 and the global financial crisis of 2008-2009. It is worth noting that both those instances proved to be exceptional buying opportunities for astute investors.

All in all, it seems that the prevailing sentiment among these influential money managers is still cautious, even amidst an impressive market rally. This observation provides some reassurance to investors who may be concerned about potential market exuberance.

In conclusion, as investors, it is crucial to approach the market with a contrarian mindset. While others chase after fleeting gains, staying calm and calculated can often lead to long-term success.

The Big Money’s Shift Away from Commodities

It seems the Big Money investors have made a sudden retreat from commodities. According to a recent survey, their exposure to commodities has experienced the sharpest three-month decline in nearly a decade. In fact, their current level of investment in commodities is now on par with what it was back in May 2020, when the world was grappling with the early days of the Covid crisis and oil prices were plunging below zero.

The survey doesn’t stop at commodities. It also reveals that money managers are displaying an overall underinvestment in real-estate investment trusts and utilities.

To put things into perspective, BofA Securities’ monthly sentiment index, which tracks the survey results, indicates that the Big Money is currently as bearish and gloomy as it was during major financial crises such as the global financial crisis of 2008-2009, the European debt crisis a decade ago, and the panic of March 2020 caused by the Covid outbreak. These past instances are often regarded as excellent long-term buying opportunities, so the current sentiment may hold promising prospects.

As someone who has been following these surveys since before 9/11, I must say that while they aren’t foolproof indicators, they have proven to be quite reliable over time. When money managers heavily converge on one side of a trade, it often pays off to take the opposite stance.

While Wall Street traders may delve into the finer details of the survey, it might be more beneficial to take a step back and look at the bigger picture. Presently, the Big Money is demonstrating an unusually high level of bearishness. And historically, such pessimism has ultimately turned out to be bullish in the long run.