The Investment Lessons of World War 2 For Contrarians

If you’re still skeptical about combining technical analysis with fundamental research, I have a great book for you to read that may shift your mindset.

The book is “Wealth War and Wisdom” by Barton Biggs. Mr. Biggs does a fantastic job of superimposing what was happening to the world’s stock markets through charts as World War 2 was raging.

It’s absolutely fascinating to see how the world’s stock markets rose and fell throughout the war and the wisdom they had to recognize the significance of battles. Biggs shows through charts how the British stock market bottomed out just before the Battle of Britain. The U.S. market turned at the epic battle of Midway and the German market peaked at the high watermark of Germany’s attack on Russia. Those events turned out to be the three greatest turning points of World War II although at the time no one and no instruments except the stock markets recognized it.

Contrarians are trained to ignore the market’s reactions to events and technical analysis but I agree with Biggs that the markets have great wisdom especially at critical points.

Contrarians ignore the wisdom of the markets at their own peril. At critical turning points, the equity market itself is the epitome of a wise crowd and we should pay close attention to its messages particularly when the trend is reversing.

This is further evidence for contrarian investors to watch how a stock reacts to important events such as a bad earnings report or when a CEO is fired or hired. The stocks reaction can send more wisdom than any analyst or expert at a time when the crowd hates a stock.

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