If it feels wrong, do it

Contradiction is everywhere. It is a part of who we are. We are fully capable, and often guilty of, firmly believing two things that would seemingly contradict each other.

The world is full of slippery slopes, and fortunately humans are well-equipped to navigate all sorts of surfaces.

So often in investing, it is impossible to follow a linear path. For one, factors change over time. What was true five years ago might not be true today. And opinions change over time as well.

But it is also true that at times you find yourself investing in ways that are in tension with your current views. That’s where I find myself today, and it feels like a moment worth reflecting on.

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I’m on the record as being part of the “higher for longer” camp, believing that what has happened with interest rates over the past year isn’t just a quick blip before we head back to what we experienced over most of the last decade. I have no idea what the average rate will be over the next few years, or exactly how long until rates start falling again, but I do believe that what we have right now is closer to what normal will be for the next few years than what we had two years ago.

I’m hardly alone here. There is still a lot of Pollyanna talk about how wonderful it will be when rates go back to zero, but a lot fewer people out there believe that it will happen immediately compared to what we saw as recently as earlier this year. The stubborn Fed is becoming the consensus.

And that’s having an impact on stocks. Specifically, stocks like yieldcos, financial services companies, REITs, and others who rely on debt.

The market isn’t wrong. The world is getting much more difficult for these companies. There will be losers. And there will be pain even among the survivors.

And yet… as I screen for potential investments these days, these same companies are the ones that jump off the screen at me. Yes, they are dangerous. There could be a zero here if things don’t go well. But in an environment where there are few bargains to be had, the bargains I see are bargains for a reason.

And so, we have our contradiction. I’ve been buying stocks that are battered and bruised by the market for reasons I agree with. A thrift now yielding over 10%. A REIT paying close to 12.

It’s easy to say, “be greedy when others are fearful,” but when you believe others are justified in being fearful it does create some odd feelings when you hit the “buy” button. How do you buy a stock when you agree with the thesis of the person who is selling it to you?

This is possible only if you keep in mind the game you are playing. I’m buying not for the next six months, but for the next 10 years. I’m also buying incrementally. If these purchases all go to zero I won’t be broke or unable to retire. Make reasonable bets, not backbreakers.

I think the best investments come out of seemingly obvious contradictions. Which isn’t to say all of these investments will turn out to be my best. As snarky as we like to be, there is some wisdom in conventional wisdom.

But I’d wager few fortunes have been made on Wall Street without a fair amount of cognitive dissonance experienced along the way.

Disclaimer: Fits and Starts DOES NOT provide financial advice. All content is for informational purposes only. Stocks mentioned are as reference only, and a mention should not be interpreted as a buy or sell recommendation. The author is not a registered advisor or a broker/dealer. DO YOUR OWN HOMEWORK. The information contained within is not and should not be construed as investment advice, and does not purport to be. The red zone has always been for loading and unloading of passengers. There’s never stopping in a white zone.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.