One thing I pride myself on is being the ultimate contrarian. When others are selling I want to be buying.
Two theories I base my trading on are from two of the great investors of our time. I believe in Sir John Templeton’s adage that you buy at the point of maximum pessimism.
And I believe in George Soros’ theory of reflexivity that the market is always wrong. While I am not doing the theory justice, it states that markets overshoot in one direction or another and then have to reverse course. This differs from the efficient-market theory, which contends that the market is always right. Soros believes that markets move too far in one direction and then get oversold or overbought — and later have to make an about-face.
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This is what we are seeing in Japan at the moment. And our feelings, prayers and thoughts go out to the people of Japan in this time of disaster.
After the Kobe quake in 1995, the Nikkei fell 25 percent. The Nikkei then proceeded to rally 52 percent in the following recovery.
And obviously, if there was some sort of nuclear meltdown in the current crisis, that would change everything. But, barring that, you always buy during crises.
Even before the crisis, Japanese stocks were some of the cheapest in the world. Many companies were, or are, trading at half of book value and single-digit price-earnings ratios, or P/Es.
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Look at Chile last year. Chile was hit hard by an 8.9 quake in February and after the initial sell-off, Chile has been one of the strongest-performing markets in the world during the past year. When there is an earthquake, there also is the inevitable rebuilding and reconstruction. This boosts economy growth and demand.
Therefore, I would be buying Japan at the moment.
I will do future articles on Japan and show you why things are not as negative there as everyone thinks.
However, you should also considering buying Japan in this time of crisis as it should pay off in the coming years.
About the Author: David Skarica
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