While in hindsight, it is easy to see that was the right call, overall, psychology was highly negative at the time.
Just as stocks can detach from underlying fundamental realities and become over or under-valuated, so can bonds. As we noted last week, the record short position in bonds and computerized algorithmic trading has pushed yields substantially higher than the economic data and, ultimately, bond valuations would suggest. As noted recently by“The higher the indicator, the more expensive stocks are relative to bonds . As you might guess, the lower it is, the cheaper stocks are vs bonds .
We always get told in those boilerplate investment disclaimers that the past performance does equal future returns, and in this case, it is actually sage advice. Along with the mounting evidence that stocks are expensive and bonds are cheap, that advice should well be heeded.”From a contrarian investing view, everyone is so bearish on bonds that it is a bullish signal. The problem with contrarian investing is that it is hard to do and harder to go against seemingly common wisdom.
Think about it this way. If the goal of investing is to buy something when it is cheap, those opportunities don’t exist in bull markets. Buying something of value but is truly undervalued can ONLY occur when no one wants to own a particular asset. There are a couple of caveats to that statement. As an investor, you must know the asset’s actual value and be willing to hold it long enough for the market to recognize it.for an extended period is difficult.