Peter Schiff spoke with Palisade Radio last weekend about his strategy for contrarian investing. While the principles are simple, the trick is having the courage of your convictions to bet against the consensus. Peter believes the current consensus is that the US economy is recovering with a strong dollar. He thinks that party is going to end soon and that the US will have a full-blown currency crisis within the next couple years. He recommends investing in the precious metals sector, oil, and fundamentally sound overseas companies.
Highlights from the interview:
“A contrarian is going against the crowd, by definition, when you’re doing something that nobody else is doing. Let’s say you think a stock is cheap that nobody else wants to buy, it’s likely to continue to stay cheap or get cheaper even after you recognize the value. By definition, if everybody wants to sell something and there’s not that many buyers, the price can go down. But you have to have the courage of your convictions that returns don’t have to be front-end loaded, that sometimes you have to sit on a position for years before it works out. Then, when you look at your annualized rate of return, it ends up being quite good. That’s the reward for being patient. A lot of people who are less patient, they want to get that immediate gratification. They want to buy something and have it go up right away. Generally, the only time you can do that is if you buy something that is already going up… A lot of times people who chase short-term performance end up losing money in the long-run…
“Not only are gold stocks a contrarian play, but a lot of the foreign currencies are contrarian plays. The Australian dollar, the Norwegian krona, the Canadian dollar, even the euro. The way you make money is try to find a trade or thesis that everyone is betting on and try to see if it is correct. If it’s not, then you’ve got to bet against that trade. That’s what happened with the mortgage market. Everyone was convinced that real estate prices can only go up, and they were all wrong…
