Taking a contrarian position in a theme in the face of adverse public opinion is never going to be easy.
When consensus opinion is extremely strong elsewhere, it is natural to align with it and go with the flow. “Why should we swim against the tide when it’s easy to let the tide take you far?” is a very natural way to think.
Whether it is preferring to invest abroad or choosing to invest only in midcaps and smallcaps, consensus is running extremely strong. Investors think it is perfectly normal to just do what everyone else is doing. They see no reason to go against the consensus view.
This results season comes at a time when consensus is at its strongest. This is a perfect setting to test the consensus. On one hand, extreme pessimism is already in the price. On the other hand, heightened optimism is also in the price.
As the results season progresses, it will be interesting to see how the market processes the results of its favorite companies and those which are totally out of favour. A shift in market stance may just be starting to take shape.
While the mood may begin to change now, it will take the market much longer to accept that. Flows will continue to go into the same overvalued themes by habit. Investors who consciously play contrarian now and chase value will find both safety and opportunities even as the market mindlessly chases higher risk in overpriced growth stocks.
