Back in the late 1970s when Steve Martin was funny, he did a bit about being an individual. He would walk out onstage in his white suit with an arrow through his head and make the audience take the nonconformist oath. It went like this:
STEVE MARTIN: Let’s repeat the Nonconformist Oath. I promise to be different!
AUDIENCE: I promise to be different.
STEVE MARTIN: I promise to be unique.
AUDIENCE: I promise to be unique.
STEVE MARTIN: I promise not to repeat things other people say.
AUDIENCE: I promise … [Dissolves into nervous laughter.]
STEVE MARTIN: Good!
This is what I think of when the Wall Streeters talk about being a contrarian investor.
A contrarian investor is one who buys when everyone is selling and sells when the masses are buying. In other words, a good contrarian buys fear and sells greed.
It works for one very simple reason: Once all the buyers have bought, there is no one left but sellers. The asset has to go down and vice-versa.
Launchpad Trader
In my trading service Launchpad Trader, I am up 157% on Freeport-McMoRan, a gold and copper play, because I bought it when everyone hated copper and had hated it for 10 years.
My readers, people just like you, have also made 58% on Mosaic, a producer of fertilizer. This is after agricultural stocks were shunned. We also made 70% on General Motors and 56% on Denny’s — the restaurant — during the pandemic.
These types of returns seem unlikely, but they happen all the time. The biggest and fastest gains happen when all the sellers have sold and there is nowhere else to go but up.
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Warren Buffett is famous for saying “Find the lie in the market and exploit it.” A contrarian investor does just that.
If you want a real-life example of how it works, just look at Michael Burry. He bet big against the subprime mortgage market around 2006. You may have heard about him from the movie The Big Short.
It is estimated that he made $100 million on his trade and his investors made $725 million. Not bad for a boutique hedge fund.
Honey, What Do You Hate?
With this in mind, you should start the day like I do by asking your spouse, “Honey, what is the most hated investable asset right now?” They might say heavy antique furniture or NYC taxi medallions. And they are probably right.
But today I’d like to exploit the lie in the market that says cities are dead. As you know, people fled the big cities in the past year in search of detached houses in the sticks. Employees are working from home. City rents for apartments, retail, and work spaces all fell this past year.
The dominant market paradigm right now is that they won’t come back. I think they are wrong. Few people ever went broke betting that big-city real estate would go up in price.
One company that owns a lot of this type of real estate is Boston Properties (NYSE: BXP). BXP is the largest publicly held developer and owner of Class A office properties in the United States. It is concentrated in five markets: Boston, Los Angeles, New York, San Francisco, and Washington, D.C.
BXP pays a 3.8% dividend and could easily jump 50% next year as offices reopen. But there are two big-city REITs I like even better. However, I owe it to paying members of Bull and Bust Report to give it to them first. That said, I invite you to join us.
All the best,
Christian DeHaemer Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
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