Contrarian’s Revenge: How Dead Sectors Come Back to Life – Part II

Last week, I asked what type of investor you are:

Do you need the reassurance from colleagues or the news (including social media) to build your conviction before putting any money into the markets?

Most investors do.

My colleagues and I strive to offer a different perspective, providing you with some additional food for thought.

But confirmation from your regular information sources, whether that’s a family member, Twitter, or ABC News, creates a powerful tool that moulds our opinions.

Obviously, we need to obtain our information from somewhere, so our ideas will tend to align with whatever we read or whoever we talk to the most.

However, when two or more different sources convey the same message, it can create a powerful feedback loop that kicks us into motion.

Like pulling the buy trigger on a stock!

But what if you began to view your information sources differently?

Pivoting your investment decisions in the opposite direction to what the headline logic tells you to do?

That’s the contrarian mindset. And it’s not easy, and it’s not always profitable. But it can help you avoid getting caught up in the trap of an overheated, exuberant market.

And I suspect we are approaching that point right now…Take this headline from the Wall Street Journal yesterday:

Digging into the piece a little further, you can clearly see how bullish markets in the US are becoming (emphasis added):

“Financing activity is surging, with mergers on the rise. Then there are the massive investments in the rise of artificial intelligence, building out data centres and other infrastructure.”

“The year has seen the biggest-ever leveraged buyout to take videogame maker Electronic Arts private, advised by Goldman and funded by an immense $20 billion financing from JPMorgan. And Bank of America is expected to bring in the biggest-ever disclosed deal fee for a single bank, a cool $130 million.”

Let’s break this down a little further:

“…mergers on the rise”

“… the biggest-ever leveraged buyout”…

“…biggest-ever disclosed deal for a single bank”

Excited yet?

The stumble in US markets last Friday gave investors a rare glimpse into what it looks like when markets don’t go up every day.

Incredibly, that one downward day caused a mini-panic.

I suspect that’s because when markets fall, investors who have focused on high growth and strong-momentum plays are often the most exposed.

So, what’s the solution?

Is there any magic formula for making cash in the markets without having the feeling that you might need to sell based on one negative day of trading?

Value investment strategies unquestionably come to mind…

When investment legends like Warren Buffett attribute their success to this strategy, only a fool would think this method is dead.

So, where can you find value in what’s feeling like a rather overheated market?

One solution…

The Traditional Energy Market: A Value Investor’s Playbook

My colleagues, Nick Hubble and Greg Canavan, have been spot on in recognising the failures of the green energy transition and the need to invest in ‘reliable’ traditional energy.

They recognised this problem years ago, well before the mainstream began to catch onto some of the pitfalls of shifting to renewables too quickly.

And today, there are emerging signs that sentiment IS shifting back to traditional energy.

I track numerous mid-cap North American oil and gas stocks for my premium membership group at Mining Phase One and have noticed a significant upward shift in their trend over the last few months.

And that’s despite oil and gas prices remaining flat.

I suspect, like my colleagues have for a long time, that Western governments are now recognising that solar and wind are not sufficient for maintaining a competitive industrial or technological economy.

So, a couple of things you can do to start learning more about the merits of investing in traditional energy stocks:

Firstly, I suggest checking out this video that Greg uncovered for his paid readership group, which offers an interesting take on the ‘energy cycle.’

‘Traditional Energy Profitability: Closer to Trough Than Peak’.

According to Greg, the host, Arjun Murti spent over 30 years on Wall Street as a sell-side equity research analyst, buy-side investor, advisor, and board member, covering the global energy sector.

Then, if you’re looking to kick-start your investment journey into this sector, you can check out my latest report here.

Until next time.