If the up-and-down market has you nervous, you might want to sit out the markets for the next 60-90 days. This is according to a legendary contrarian investor.
Alan Lancz, a disciple of famed investor Sir John Templeton, says stocks are going to remain turbulent right on through the election and likely won’t make any major gains in the meantime.
He points to a handful of reasons for his outlook. He says any one of these by itself is enough to spell trouble for the markets.
“Investor anxiety will only intensify over the next 60-90 days. It will likely build with uncertainty from U.S.-China relations, election chaos, delays in further relief/stimulus, and a second wave of COVID like parts of Europe are experiencing.”
This “wall of worry” that investors have to climb will keep the market from any significant rally, says Lancz, even as he says many investors have taken a “risk off” approach to investing and are piling into speculative investments like last week’s Snowflake IPO.
“Mitigating risk has become lost in the elation of a rising market, and yet should be a primary area of focus, at least through December,” he wrote in his latest newsletter published on Monday.
Risks Too High
Lancz said that the multiple risk factors facing the market – including the presidential election, a rise in new coronavirus cases and a lack of another stimulus bill – could be too high a wall for investors to overcome in the near-term and could push stock prices lower.
“All these uncertainties will eventually dampen investor confidence, thus pressuring lofty valuations,” he said.
Because of this, Lancz says investors should start building up their cash reserves to prepare for an eventual buying opportunity.
The “strategy would be to continue to build cash, especially with many of the value oriented more defensive companies no longer in a buying range,” he wrote.
Like Sir John Templeton, Lancz is a strong believer in contrarian investing, identifying undervalued assets others overlook. He formed a strong relationship with Templeton until the legendary contrarian investor’s death in 2008. And like Templeton, Lancz has eschewed a Wall Street address, setting up his investment advisory in more modest Toledo, Ohio.
Lancz has a track record of correctly predicting major market moves. Back in 2007, he advised his clients to exit the market before it crashed. Additionally, in 1987, he sidestepped the 22% single-day drop in the Dow.
Earlier this year, as the economic lockdown plunged the stock market into a correction,
Lancz highlighted Amazon and UPS as companies he thought would do well. Shares of Amazon have climbed 28% since late April and UPS shares have climbed 60%.