How to Profit From Investors’ Biggest Fears

Have you ever tossed and turned at night, worrying that a presentation the next morning would go terribly wrong?

Have you ever lost sleep worrying about tomorrow’s meeting – and if your client was going to ask you a question that you couldn’t answer?

If you have, then you know that most of what keeps you up at night doesn’t actually come true.

The same is true in the markets… The fear that keeps investors up at night is usually less likely than they expect. And right now, that idea is setting up a massive contrarian opportunity.

Let me explain…

Yesterday, I told you that fund managers are scared of stocks. That tells me we haven’t seen the ultimate top yet. But stocks aren’t the only thing fund managers are worried about…

In recent months, their biggest fear has been rising interest rates. That’s what’s been keeping them up at night.

According to the February Global Fund Manager Survey, those surveyed said “inflation or a bond crash” were the biggest “tail risk” fears in the markets. (A tail risk is the kind of event you might not see coming… but it could have catastrophic results.)

The question is: should we be worried about what’s keeping fund managers up at night?

Based on history, the answer is “no.” In fact, based on history, we should exploit their biggest fears for profit – because they usually don’t come true.

Consider what happened to a few of those recent “biggest fears”…

In early 2017, fund managers in the survey said the biggest tail risk was the collapse of the European Union.

Despite those fears, European stocks soared in the months that followed. The MSCI Europe Index is up 27% since the beginning of 2017.

The same thing happened with the euro.

When fund-manager fear was high, the euro fell to its lowest level since 2003… The euro started 2017 at €1.05 to the dollar, when fear was at an extreme. It then soared to €1.25 to the dollar in February 2018.

This tail-risk fear turned out to be the exact opposite of what happened. And that’s not the only time it’s worked that way…

Chinese stocks crashed from mid-2015 to early 2016, losing more than a third of their value. By late 2015, fund managers in the survey said the biggest tail risk was a Chinese recession. And it hung around as their biggest fear for months.

The worry was that a stock market crash could ignite a full-blown recession. They were wrong…

The MSCI China Index is up 57% since the end of 2015.

The point is, the biggest fear that’s keeping investors up at night usually doesn’t come true. And it often signals a major contrarian opportunity.

Lately, fund managers see inflation and higher interest rates as the biggest tail risks. Nobody believes lower rates are possible.

As a contrarian, I love to see this kind of situation… when the entire investing world agrees on a conclusion. It rarely works out. The exact opposite of that consensus tends to happen instead.

Interest rates have been on the rise. Ten-year government bonds broke 3% for the first time in years last week. But history tells us the run-up could be ending soon.

Rising rates are keeping investors up at night… But we shouldn’t worry about their biggest fear.

The massively contrarian bet on lower interest rates is the smart bet from here.

Good investing,


P.S. If market fears are keeping you up at night… please join us on May 10 for a free special event. My friend Dr. Richard Smith will walk you through a simple system that can help you make more from your investments, with less risk. I’ll be speaking too… And I can’t wait to talk about how this strategy works with my “Melt Up” thesis. Click here for more details.

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About the Author: Daily Wealth

Dr. Steve Sjuggerud is the founder and editor of one of the largest financial newsletters in the world, True Wealth. Since inception in 2001, True Wealth readers have made money every year with safe, contrarian investment ideas.

Steve did his Ph.D. dissertation on international currencies, he's traveled to dozens of countries looking at investment ideas, and he's run mutual funds, hedge funds, and investment research departments.

Steve's investment philosophy is simple: "You buy something of extraordinary value at a time when nobody else wants it. And you sell it at a time when people are willing to pay any price to get it." It's harder than it sounds, but Steve continues to be able to do just that for his readers. Click here to read classic issues of True Wealth.