Fighting trends in themarket without solid reasoning is a good
way to go broke quickly. But thecontrarian strategy of buying at
the bottom and selling at the top has earned huge sums ofmoney
for master investors such as George Soros and John Templeton.
They've made uncannily accurate market calls by going against
popular opinion. Inspired by their wildly profitableinvesting
strategies, I did some research and uncovered what may be the
boldest contrarianinvestment of the decade.
But first, I should point out that it takes a contrary
statement to explain contrarian investing: Despite popular
belief, this strategy isn't simply going against the crowd for
the sake of challenging the status quo. Soros and Templeton, for
example, use careful research to support their contrarian
positions before they risk even one dollar on an investing
This contrarian attitude allows investors to see the subtle
signs that a market move is overextended or the first glimmer of
hope when everyone has given up on aneconomy ,stock or market.
They can see when thebull market exuberance is truly irrational,
enabling shorting at the highs or buying near the lows.
This approach led me to an economically struggling nation that
most investors have dismissed as having any potential for
I can't blame them.
After all, years ofdepression , out-of-control debt loads,
riots and twobailouts from the International MonetaryFund that
didn't seem to accomplish much have turned this beautiful island
nation into a pariah of the global economy. But I say it's time
to invest in the nation that nearly bankrupted the entire
European Union: Greece.
Looking at the facts, the worst is over for Greece. The
country has started its long climbback up the steps to
This provides the perfect environment for risk-embracing,
contrarian investors to enter long-terminvestments with strong
potential for profits.
It's important to remember, however, that changeswill be slow
and hard-won in this beat-down country. Regardless of the data's
slight ticks higher, 30% of Greece's labor force remains
unemployed, while 52% of its young people have not been able to
find work. Times are still dire, and I am not saying things are
back to normal in Greece. However, I strongly believe we are
witnessing the first glimmers of improvement.
One of the first harbingers of economic stabilization is that
the canaries in a coal mine are saying thebond market has
improved. Greece's 10-yearbenchmark borrowing costs are one-third
of what they were in May 2012 at 10.6% and have been fairly
stable since the first of this year. This is because the
EuropeanCentral Bank is acceptingbonds guaranteed by Greece
ascollateral for its monetary operations. This is a huge first
step as the nation lifts itself from the floor.
And the latest gross domestic product numbers indicate the
Greek economy contracted at 5.7% in the fourth quarter of 2012,
beatinganalyst 's estimates and 2011's 6% contraction during the
fourth quarter. I know this is just a fraction of improvement,
but any improvement is a step in the right direction.
In addition, the government under formerPrime Minister George
Papandreou experienced much difficulty in followingIMF bailout
requirements and targets. But the new government led by Antonis
Samaras has successfully met or even beaten the requirements.
Togain the votes needed to maintain adherence to the bailout
rules, Samaras has built a coalition of centrist parties from the
right and left that are decidedly supportive of the European
As you likely know, this adherence to the IMF's bailout rules
means austerity for the nation. No one said this reversal of
misfortune was going to be easy, but at least we now know that
Greece will likely not be leaving the euro zone. This means the
formidable powers of the European Central Bank and IMF still can
be expected to do whatever it takes to get Greece's economy back
Sensing a positive turn, the Greek stock market has rallied by
more than 82% since June 2012.
In addition, Standard & Poor's increased the country's
sovereigncredit rating to "B" with a stable outlook -- up from a
"selective default"rating just four months ago. These are all
glimmers of hope in Greece's very negative economic
How can contrarian investors bestcapitalize on the brewing
I think investing in individualstocks like the
National Bank of Greece (
is simply too risky at this stage of the game. While there may be
large profits for those investors willing take the risk on
individual stocks, the downside currently outweighs theupside
Investors need to invest into the economy as a whole so that
the sectors that are firing on all cylinders balance thelaggards
. The way things are right now, it is difficult to determine
which sectors will remain profitable and when the slow starters
will finally roll over into profitability.
This is why a diversified instrument like
Global X FTSE Greece 20ETF (
fits the bill. Thisexchange-traded fund (
) holds 20% financials, 22% consumer goods, 14%
telecommunications, 13% consumer services and 12% industrials as
its top holdings. It is down slightly on the year, because of
adowngrade to emerging-market status by Russell Investments. This
pullback sets up a perfect time for savvy contrarian investors to
start to build a position in Greece.
Risks to Consider:
There is no question that Greece remains extremely risky.
However, it is within this high-risk level that I see
opportunity. The Greek stock market is rallying, but the question
is, will there be another unforeseen bump in the road? You should
always use stops and position size properly when investing, and
this is particularly true in speculative contrarian ideas.
Action to Take -->
GREK is trading above its200-day moving average but has fallen
lower during the last 30 days, and has just bounced from support.
This sets up an ideal time to begin accumulatingshares . Buying
now makes sense with stops set at $16 and a 100%, 24-month return
target at $34.
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