This month we explore the concept of contrarian investing.

1. Market Perspective – October 2016
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Overview: For decades, investors have made the behavioral mistake of piling into popular trades.
We would point to the tech bubble as the prime example, but on the other side of the equation,
fortunes have been made by remaining calm during periods of crisis. This month we explore the
concept of contrarian investing in the context of history, as well as in the current environment.

2. Why Not Follow The Herd?
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Contrarian investing is a concept in which the worse (or better) things seem, the better the
opportunity for profit, with the appropriate long or short positions.
• “Bull markets are born on pessimism, grow on skepticism, mature on optimism,
and die of euphoria.” ‐ John Templeton
• “If it’s obvious, it’s obviously wrong.” ‐ Joe Granville
• “I will tell you how to become rich…Be fearful when others are greedy. Be greedy
when others are fearful.” ‐ Warren Buffett
• “As contrarians, the only thing to fear is the lack of fear itself.” ‐ Bernie Schaeffer
• “The worse a situation becomes, the less it takes to turn it around, the bigger the
upside.” ‐ George Soros
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3. Tech Bubble Review
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• Beginning in 1999, internet stocks
began to advance. They did so at a
virtually unprecedented pace until
2001, despite many rational investors
understanding the over‐valuation was
extreme.
• While few were able to correctly time
the unwinding, ultimately valuation
prevailed and the internet bubble
burst with a dramatic selloff in Nasdaq
(shown in this chart). It took nearly 15
years to recapture highs.
• The bubble lasted longer and inflated
further than was rational. Taking
contrarian positions (in this case
shorting or avoiding the herd buyers
of internet stocks) was a successful
strategy as the index declined more
than 75% from peak to trough.
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4. Current Concerns
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• Following a broad 7‐year bull
market, some valuations now
appear on the high side, driven by
the prospect of seemingly eternal
central bank assistance.
• While investors will undoubtedly
be unsuccessful timing a downturn,
future equity returns look
challenging given the current
opportunity set and the continued
slow global growth.
• When valuations look elevated,
time and time again markets tend
to eventually stumble. Evaluating
opportunities in the context of
risk/reward can provide for better
long‐term performance.
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5. Potential Contrarian Opportunities
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• As noted in the previous slide, international
securities appear to offer a long‐term
opportunity on a valuation basis, with a
meaningful discount to domestic stocks.
International sentiment remains poor, and
broadly speaking, international remains the
topic of concern. The chart to the left shows the
long‐term underperformance of international
stocks, presenting possible opportunities going
forward.
• With the dramatic rise in the valuations of yield
type investments, underexposure to high
yielding securities (consumer staples, utilities
and REITs, etc.) may eventually prove wise. The
overvaluation and “chase for yield” has been a
dominant force and could eventually approach
“bubble” type levels, particularly when interest
rates increase.

6. Contrarian Framework
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This chart shows asset class
performance over time. Note
that while some asset classes
do tend to perform well for
multi‐year periods, the trend
often results in a “fall from
grace” in the years that follow.
On the other hand, picking
underperforming asset classes
typically rewards investor
patience over time. A well
diversified portfolio will, by its
nature, never be the best
performer. However, it will
tend to limit volatility and
prevent investors from chasing
performance, which is usually
associated with poor
outcomes. In effect, a well
diversified portfolio forces
some level of contrarian
investing, thereby rewarding
investors with better long‐
term, risk‐adjusted returns.

7. Conclusion: While valuation is a key measure of contrarian thinking, it is not a timing tool.
Thinking differently than the herd is typically a profitable investment strategy over time. Going
against the grain, buying when others are selling in fear, and selling when others are buying with
exuberance makes logical sense, and more importantly has rewarded investors in the long‐term.
It is also the more difficult path, given the behavioral aspects and emotional proclivities of most
investors. Ultimately, diversifying portfolios and thinking long‐term can help investors succeed in
achieving their financial goals and objectives. These are the driving principles that guide us on a
daily basis.
Experience Insight Impact
Market Perspective – October 2016
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8. Experience Insight Impact
Disclaimer
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Opinions expressed in this commentary may change as conditions warrant and is for informational
purposes only. Information contained herein is not intended to be personal investment advice for
any specific person for any particular purpose. We utilize information sources that we believe to
be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee
of future performance; investing involves risk and may result in loss of capital. Consider seeking
advice from a professional before implementing any investing strategy.