Avoid Sharing the Jackpot

What can we do to overcome the obvious pitfall, which is to overcome sharing the jackpot and keeping most of it for ourselves?

The answer lies in being a contrarian.

There is only one rule in investing that everyone must adhere to and that is the rule of “buy low and sell high”. It is the only rule that will make you money. Incredibly it is a rule that very few follow.

The vast majority of market participants like and want to be part of the mass. We like to feel part of the majority. Being a member of the majority crowd is re-assuring, safe, comfortable. Add these psychological factors with a dread of buying a financial product that has/is undergoing a steep fall and we can now understand the mentality of the lottery ticket buyer and the financial product speculator.

Now let us apply this to what we see in the financial market place currently, in other words where are investors the most overweight expecting the biggest jackpot and where are they the most underweight and therefore not buying a ticket?

The recent market turbulence has resulted in a big move out of risk into hard assets in the form of commodities especially crude and the precious metals. Whilst we believe that this is a good medium to long-term strategy, it is not one we wish to participate in at this stage. We are happy to take the opposing view by buying into potential jackpots, which are currently small and which include first world risk, the USD and emerging markets. We will shun today’s big jackpots which include precious metals, first world government debt and most currencies against the USD.

To summarize never buy a lottery ticket on a friend’s recommendation, always adhere to the only rule that works which is “buy low, sell high” and finally most importantly and the most difficult of all, stay away from the in-crowd.

Remember financial markets benefit the small minority at the expense of the vast majority.

Karim Ghaidan
Investment Director