Forget the Wisdom of Crowds

Forget the Wisdom of Crowds

It's safe to say most of us don't find the financial markets particularly happy hunting grounds lately. The stock market is down some 16% from its peak last October. Bankers are writing off billions of dollars in loans gone sour. "Recession" is the word on everyone's lips.

But if fear and confusion send many of us to the same old blue chips, or into paralysis, there are hard-core heretics who revel in such chaos. They are the contrarians, investors who often share a deep-value bent and venture into markets many would consider too risky—and who, history teaches, tend to do well when confusion reigns and market risk climbs. To find out where such iconoclasts see opportunities now, we tracked down three of the best.

"GOLD ISN'T EXPENSIVE"

The name of Marc Faber's newsletter, The Gloom, Boom & Doom Report, gives a succinct sense of his view of market cycles. Among his claims to fame: He told investors to get out of the market right before the 1987 crash. The Swiss-born Faber, who moved his family from Hong Kong to Chiang Mai, Thailand, in 2000, is, like many contrarians, a student of financial history. Indeed, he collects rare economic tomes. In general, "the consensus is right for a while," he says, but "at major turning points contrarians can achieve significant gains with less risk" than those following the herd.

Faber manages some $300 million from his home, an old Thai house he remodeled by the Ping River, and out of a Hong Kong office. He's staking out a controversial position: Gold is cheap. Or at least not expensive at $882 an ounce. Probe his reasoning and you tap a deep vein of contempt for central banks, in particular the U.S. Federal Reserve and its chairman, Ben Bernanke. "I don't think gold is expensive considering the central bankers we have in the world," he snorts. Faber thinks the cost-of-living expenses the average family deals with are far higher than the government's official inflation numbers suggest.

Faber's other "great contrarian play" is to load up on cash—in preparation for a big buying opportunity, whenever and wherever it arises. One place where he'd like to pounce: Japan, which has long been down-and-out. The Nikkei index trades around 14,000, far below its 1989 peak of almost 39,000. "Japan is the most unloved market," he says. "It has been performing miserably, but sometime there will be a great buying opportunity."

Now, he sees opportunities in Paraguay, Uruguay, Russia, Ukraine, and other former Soviet countries—in farmland. U.S. land is too expensive, he says, with the ethanol boom sending prices up. So he's betting on the growing world demand for food by buying in cheaper countries. Along with tracts of land, as of Jan. 18 he owned farm stocks such as Sampoerna Agro in Indonesia and Univanich Palm Oil in Thailand.

"THE RENMINBI IS THE SAFEST ASSET"

Joining Faber in Bernanke-bashing is Jim Rogers. George Soros and Rogers founded the Quantum Fund in 1970, which became perhaps the most famous hedge fund ever. Then, at age 38, Rogers retired to start a new career traveling the world by motorcycle and car, scouting investments and writing books about his adventures. "Travel lets you find out the real story, not what you read on Wall Street and the press," he says. "It gives you more of an international and historical perspective."

Rogers, talking while on the treadmill in a Beijing gym, sees America in long-term economic decline. The banking system is bankrupt. Bernanke is a "fool" running a monetary policy aimed at bailing out Wall Street that will only lead to a "horrible inflationary situation." America is a debtor nation.

The long-term play, he says, is China. It's a belief he embraces with zeal: He recently sold his New York home and moved with his wife and daughter to Singapore. (Rogers, who says he took a contrarian approach to kids—he had his first at 60—is expecting a second in March.) Despite global concerns about China's financial system, Rogers thinks it's far safer than that of the U.S.: "The renminbi is the safest asset—a difficult word to use when it comes to markets—but I think that's the case for the next 20 years." He's shifting all his assets out of the dollar. Little wonder that A Bull in China is his latest book's title.

His take on the recent plunge in Asian stocks: "This is good because it insures a bubble does not develop in China. It would take years to recover from a bubble à la Japan." If China suffers a big setback, it would offer a buying opportunity, reminiscent of the U.S. in 1907 or Japan in 1966, he says. The American financial system went belly-up during the panic of 1907. Yet Rogers points out that the U.S. was in the middle of a great development wave that pushed the country toward being the world's wealthiest economy. Similarly, in 1966 the Japanese government was forced to bail out the country's brokerage industry, he says, and Japan's economy took off over the next several decades.

Rogers is also known for his early play on commodities. In the 1980s and '90s, Wall Street disdained commodities. But in 1998, he created the Rogers International Commodity Index, which is up some 350% since then. "The bull market in commodities has years to go," he says, adding that there's no new supply coming online for many commodities. That said, he expects "plenty of down moments. That's the way of markets."

REAL ESTATE IN FLORIDA

T. Rowe Price Value Fund (TRULX) manager John Linehan takes a less swashbuckling approach than Faber or Rogers. But the Baltimore-based manager is gaining a reputation for bucking conventional wisdom. "To be a contrarian means a willingness to focus on the long term, to question beliefs, to buy things when they're down-and-out," he says. "Contrarian buys are hard because you can be made to look foolish."

A battered stock Linehan likes is St. Joe Co. (JOE) It's largely a real estate operator and is in resort development in the northern Florida panhandle. St. Joe has returned an abysmal -35% since the stock's 2007 high. But Linehan points out that people are still moving to Florida, and that high-end houses in northern Florida are cheaper than in the south. What's more, the company has the permits for a new airport in Panama City, Fla., a catalyst for future growth. He sees a stock trading at 32 that's worth 50 to 60. "Maybe it will go lower," says Linehan, but he's willing to sit with it for three to five years.

Linehan is also eyeing retail. The S&P Retail Select Industry index is down 29% from its 2007 peak. Linehan favors Home Depot (HD), Kohl's (KSS), and Bed Bath & Beyond (BBBY), all down about one-third from their 2007 highs. They're good companies, he says, and the cheapest they've been in a long time.

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