The contrarians have disappeared

IT MAY be Tuesday, but a lot of us are still recovering from a momentous weekend for British sport. It was great to see Andy Murray lift the Wimbledon trophy, but for me the highlight was the British Lions stuffing it to the Wallabies in the rugby. The latter triumph was all the better for seeing the so-called experts, who vilified the Lions coach’s team selection, proved utterly wrong. And it reminds me of the herd mentality in the markets these days.

For those of you who missed it, the Lions won their first test series since the last millennium on Saturday. They did this despite coach Warren Gatland dropping the demi-god Brian O’Driscoll. Pre-match, Gatland was set upon by the legions of experts who said it was incomprehensible to try and win the deciding test without O’Driscoll. Well, after thrashing the Aussies, it goes to show that taking a contrary view can be a very profitable strategy.

You don’t need me to tell you that there are few innovators and genuine contrarians in the financial markets. The Warren Gatlands of equities are few and far between, especially in the fund management industry. Too many market professionals continue to buy on blue and sell on red. Don’t believe me? Well look at the data on which fund managers have outperformed benchmarks like the S&P and FTSE 100 this year. Not too many I can tell you.

And what a merry dance they are being led over how to trade the great US taper. It’s a nighmare for those following the data. Do you buy bad data, as it means more QE, or do you sell it, as it means the underlying economy is going to hurt the corporates? And the same problem exists on the inverse for good data. For those impartial observers, such as smug TV anchors, trying to interpret their trading decisions, it’s calamitous to watch. There’s a lot of “career trades” out there this second half it seems.

And surely many money allocators, who whooped with joy at “forward guidance” from the Bank of England and European Central Bank, got overexcited once again? I mean, by all means buy the market if you think it’s too cheap and offers good value, but buying on European Central Bank guidance? Do me a favour. It means nothing. Forward guidance on rates 18 months out as a reason to buy stocks? Nice one for the herd, but pretty meaningless for how companies in the real world are going to go about selling their wares, and for that matter how they are going to fund themselves.

Still, if the herd – sorry “momentum” – style money allocators think they are on to a good thing, good luck to them. I’m just not sure I see the point of giving them my money to do what any exchanged-traded fund tracker could do. If I give my money to a manager, let them be a Warren Gatland.

Steve Sedgwick is anchor on CNBC’s SquawkBox Europe.