Unreliable Contrarianism

Learn more about this firm

Dear fellow investors,

It appears to us at Smead Capital Management that investors are behaving in a way that will damage their capital and cause them to suffer stock market failure. In 2022, as the favorite tech stocks of the last ten years got trounced, individual investors poured $100 billion into mutual funds and ETFs dominated by ownership of the very stocks which have created the most damage to their results. We get asked all the time if we are stepping up to the plate on stocks like Apple and Google, for example.

Citigroup’s quant team came up with a list of ten highly thought of tech stocks that have fallen sharply this year and argued that contrarians are buying them because it would be the kind of contrarianism you would expect from investors:

  • 1) Meta (NASDAQ:META), year-to-date performance -65%
  • 2) PayPal (PYPL), -65%
  • 3) Tesla (TSLA), -62%
  • 4) AMD (AMD), -57%
  • 5) Netflix (NFLX), -51%
  • 6) Salesforce (CRM), -50%
  • 7) Intel (INTC), -50%
  • 8) Amazon (AMZN), -49%
  • 9) Micron (MU) -46%
  • 10) Edwards Lifesciences (EW), -43%

In turn, they included a list of very strong performers from last year and called selling them the contrary thing to do:

  • 1) Occidental Petroleum (NYSE:OXY), +99%
  • 2) Marathon Petroleum (MPC), +65%
  • 3) Exxon Mobil (XOM), +64%
  • 4) SLB (SLB), +54%
  • 5) ConocoPhillips (COP), +53%
  • 6) Valero (VLO), +52%
  • 7) McKesson (MCK), +48%
  • 8) Chevron (CVX), +41%
  • 9) Daiichi Sankyo (OTCPK:DSKYF), +35%
  • 10) Glencore (OTCPK:GLCNF), +29%

This leads to some very important questions. First, what is the history of bear markets like this one following financial euphoria episodes like the one which died in late 2021? Remember, Charlie Munger called it the biggest euphoria episode of his career because of the “totality of it.” We will examine the 1929-1932 Roaring Twenties bear market (RCA), the 1973-1974 Nifty Fifty bear (DIS and KO), and the DotCom Bubble bear of 2000-2003 (MSFT, CSCO, INTC). How did the stock market, as represented by the Dow Jones Industrial Average (DJIA), and the formerly popular stocks of the prior euphoric bull markets do in the second year of the bear market that followed?

Learn more about this firm