It’s time like these that you learn the true value of being contrarian

It’s a little ironic that in the same week as we apparently proved that gravitational waves – generated by the collision of two black holes – really do exist, the global stockmarket has also fallen into a black hole of its own.

Stocks are now in a global bear market, says Bloomberg. That’s fairly meaningless; I think we all knew they were in trouble, judging by the collapse in prices this week.

Let’s move away from the whys and the wherefores briefly this morning.

Let’s just talk about what you should do…

I have a confession to make about markets like this

It’s a miserable business opening your portfolio and seeing the reality of the headlines reflected in the plummeting value of your pension or Individual Savings Account.

But if I’m absolutely honest, there’s a part of me that finds markets like this rather exciting.

I have many selfish reasons for that. Obviously, I write about finance, and when this sort of thing is happening, there’s more interesting stuff around to write about.

But at a more general investment-related level, it’s exciting too. Here’s why.

I’m 40. So my investment horizon is still long. I can’t take my pension for at least 15 years, and realistically, I don’t think I’ll be taking it for 30 years (assuming reasonable health, and that I’m not replaced by a robot in the meantime).

So, it’s as Warren Buffett says – if you are a buyer of beefburgers, then you should be happy when they go on sale. If you’re a buyer of stocks – and the average person my age is – then you should be happy when they go on sale.

Regardless of whether or not you find Buffett’s folksy style grating (and believe me, I do, grim-faced British cynic that I am), his basic point is right. If you were happy to buy a stock or a market when it was 20% higher than it is today, you should be overjoyed to keep buying it right now.

Know why you own what you own

Of course, this raises another point. Do you own what you own for the right reasons?

Shake-ups like this make you realise the value of keeping an investment journal. Why do you own this asset? Why did you buy it in the first place? Has the reason for doing so changed? If not, don’t worry. If it has – well, you need to review your case. Maybe it’s still valid.

The point is – you should know why you bought something. And the problem arises when you invest in something for little more reason than “It’s been going up for ages and I think it’ll go up some more”. Or “it’s fallen by so much that it just has to rebound”.

Because then, when it stops going up, or it just keeps falling, your rationale for buying is gone. You’re losing money – which hurts. And so you panic.

This is another core argument for value investing and contrarian investing. If you own things that are cheap and that the market hates, then you’ll be used to the market treating you with contempt, frankly.

You’ll be used to enduring periods of watching trashy, over-priced nonsense shooting up on the back of facile arguments while your own carefully argued portfolio meanders along in the manner of the tortoise.

And so short-term price movements won’t faze you.

Better yet, because you’re keeping your head, you’ll be in a position to spot the opportunities as they arise. You won’t be panicking about your losses, you’ll be looking for the best places to deploy the cash you’ve been keeping as “dry powder”.

For example, I reckon the mining sector is starting to look interesting again. We might not be there yet, but we can’t be far off it. I like the gold miners (obviously, we’ve been talking about them for a while). But more generally, I think we could be getting to a turning point – more on this in future issues of the magazine.

Sign our petition to save cash

Of course, the biggest fear has to be that the authorities do something colossally stupid as a result of all this panic. But if they do, even cash might not be safe – they want to take it away from us!

I talk a lot about negative interest rates and scary central banks in the latest issue of MoneyWeek. This is a really important story, by the way, so if you’ve still got a pile of MoneyWeeks in their cellophane to read by the side of your bed (I have a frightening reading pile too, I know what it’s like), then maybe promote this issue to the top of your pile.

But my colleague Nick O’Connor has also set up a petition on the government website, asking that the government confirm it won’t scrap cash. We had more than 5,500 signatures last time I looked, and we only need 10,000 to get to the point where the government has to at least respond to our concerns. So if you haven’t already, it’d be great if you could sign it – thanks.