How to Zig When Others Zag: The Contrarian Approach to Personal Finances

From time to time I put out an article here that depicts me as an old curmudgeon. Well, in some ways, I guess I am. My mom used to say I had an “old soul,” even at a very early age, perhaps because I spent much of my youth around older people. In fact, I’m only in my mid-thirties.

Since I was blessed to be around strong doses of equal parts wisdom and healthy skepticism growing up, I look at things much differently than most people in my age bracket. Some may call it pessimism. I get that. In fact, I have to be careful not to take a glass is half empty approach to all of life, for I have much to be happy about and I remind myself of that frequently.

Stampede by t3rmin4t0r on Flickr

However, I’ve also learned that in many areas of life it pays to put an ear to the ground, listen for the sound of the thundering herd coming, and run in the opposite direction. The “herd” is comprised of those that often blindly follow conventional wisdom.

The Financial “Herd”

In financial terms, you may remember members of the herd buying into tech stocks in the late 90s after months of ridiculous gains. They were late to the party, but wanted to join in and got creamed. More recently, the herd turned to housing, and before 2008, housing prices were sky-rocketing, and people were feeling good again a decade after the tech bubble.

Then the fall of 2008 came and went, and in its wake left many folks in underwater mortgages. Some managed to hang on, others (very few) benefited from a loan modification program, and a large majority simply had to foreclose because they couldn’t keep up the high payments, and couldn’t sell for what they owed.

My Years in the Herd

In my early 20s I followed the herd. I borrowed money when I was 20 to invest in a Roth IRA because I heard on the radio it was simply too good an investment opportunity to pass up, even if you had to borrow money to do it. Well, it is a good investment vehicle, but in my opinion, not so good that is worth borrowing the money to invest.

Around this time I also opened several credit cards in college because the herd was doing it, en masse, at football games, and other campus events. We traded in fiscal discipline for a free t-shirt, or a pizza. Bribery works with college kids, and credit card companies know it (and so do the colleges that allow them on the campus).

How I Finally Broke Free

Fortunately, I returned to my senses, and my old frugal ways before digging a hole so deep I could never climb out. We did eventually climb out, after years of scratching, clawing and fighting to pay for past financial sins. It was not a fun time, and our family adopted a saying, “Never again.”

After turning 30 I realized an entire decade had raced past me with little to show for it, financially. I was blessed to have a wife and two children, and a secure career, but I spent much of the decade treading water. That’s not really true. I was underwater, but able to come up for air just often enough to keep from drowning.

It was time to get back to the basics – old school personal finance with a paper household ledger, an envelope system for budgeting and living on cash. Gone were the credit cards, the student loans, the personal loans I foolishly used to invest, and all other “fancy” financial tools.

I recognized that for too long I had followed the herd. I thought car payments and credit cards were normal. I figured everyone borrowed money on their home, paid a little down, and then borrowed more money for a bigger home. I figured most of my friends, also in their 20s, weren’t concerned with retirement savings and emergency funds. In short, I lived it up.

To turn things around, I started living by the following what you might call “contrarian” principles, and over the last few years, it has paid off (or at least kept me relatively safe through the biggest financial storm in my lifetime…so far). I started observing conventional wisdom in a new way. I became skeptical of those pitching the next hot stock, flipping houses, and encouraging people to borrow their way to wealth.

I started paying more attention to our nation’s fiscal health, and considering the trends being repeated from the past. I don’t claim to possess some prescient skill to see into the future (else I’d be a very rich man), but there were some trends that just seemed large to ignore.

It was around this time (Christmas 2007) that I started this blog, primarily as a way to keep myself accountable. I knew what I was writing wouldn’t be popular, but I thought if things hit the fan, it just might be one day. Heck, I even remember bashing those stimulus rebate checks the government was handing out early in 2008 – remember those? Yeah, that was a popular stance at the time.

Besides managing to tick off a few people along the way with my blog ramblings, I did learn some real lessons throughout the journey and continue to apply them today.

Pay Off Debt When Everyone Else is Borrowing

This was especially popular in 2005 up to the recession. At the time we were leasing a house, and still had debt. I couldn’t begin to count the number of people who told us we were stupid for “throwing money away on rent.”

We didn’t buy our home until March 2009, when we were on solid financial ground, and after prices had already depressed significantly. My only regret – if I had waited a little longer we could have got a sub 5% mortgage, but you know what they say about hindsight.

Pay Off Debts When Consumer Spending and Borrowing is Increasing

When we started our debt-free journey after Christmas in 2007, things were still pretty rosy, economically. The herd was at the malls shopping and borrowing there way into oblivion, and refusing to save a nickel of their income.

When the first hint of economic slowdown appeared the government sent out stimulus checks, and encouraged people to “get out there and spend!” Most people followed orders. We put half of ours in the bank and the other half on credit card debt.

Pay Down Your Mortgage and Stay Put When Everyone Else is Trading Up

A few years ago, it was a popular move to fully leverage your home via maxed out home equity lines, thanks to unnaturally high home values and falling interest rates. Others who didn’t tap equity just traded up to a bigger mortgage – after all, rates were on the way down and times were good.

Unfortunately, many of those same people are struggling to make a mortgage payment after losing half their household income, and seeing their investments wiped out (but more recently re-inflated).

Work a Year or Two and Save Up Money to Attend School While Others Borrow Thousands in Student Loans

This one is always popular. I believe one of the biggest economic threats to the next generation is student loan debt.

New graduates face a crushing debt that will be with most of them for the first decade out of school, limiting their ability to enjoy solid financial footing until well into their 30s.

It isn’t all the students’ fault, either. Colleges and tuition boards have increased rates at a ridiculous pace because, well frankly, because they can. The student loan industry has been nationalized and colleges know they can charge ungodly tuition because students can borrow the money from the government.

If there were less easy money to be borrowed, colleges would have to once again compete for a family’s dollar, and tuition would likely come down. Not going to happen, so make plans now for your kids (or yourself) to find a way to get educated without going thousands into debt.

Buy What Everyone Else is Selling (and Vice Versa)

This is where my personal investment strategy has really changed over the years. I used to stay glued to CNBC and investment newsletters to try to get a scoop on the next big market. Then it occurred to me that by the time I read about it, or heard about it, those with big money had, too.

This is when I became sort of a contrarian investor, if there really is such a thing. Wikipedia sums up a contrarian investor’s philosophy quite well.

In finance, a contrarian is one who attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong.

So, I adopted my own two-pronged investment strategy. I would become a dividend investor – buying stock in strong, dividend-paying growth companies in industries that did well in both good times and bad. I would reinvest those dividends to build my positions in these companies, and one day, we just might be able to live off the dividend income alone.

I would also invest a smaller percentage of money (because there is more inherent risk with this approach), in stocks with strong fundamentals, but that had been beaten down thank to negative publicity, natural disaster, or were just oversold as part of the Great Recession. This led me to sectors like:

  • Regional Banks. Many regional banks did not accept TARP money, maintained healthy balance sheets and avoided toxic mortgage markets in smaller locations. But, they still got beat up in the financial sector meltdown.
  • Housing market. The housing market touches so many secondary markets besides the home builders themselves, who have been largely decimated the last couple years. Home improvement stores took a hit, too, and I thought rather unfairly, considering more people would be staying put and investing in home remodels, etc. when the worst was behind us. I joke with my wife that you can get a pretty good read on the local economy by visiting a Lowes (I used to work at one, part time) or Home Depot early on a Saturday morning.
  • Nuclear Power. In the wake of the Japanese earthquake and nuclear disaster, nuclear power stocks took quite a hit, and one could easily understand why. During the threat of a full reactor meltdown, who wants to bet money on the future of nuclear power. Same thing happens after coal mining disasters, oil spills, etc. The fact is, we need some of all three types of energy to meet demand. I certainly don’t sit around hoping to profit from a disaster, but you have to be willing to buy when everyone else is selling, if (1) you can afford to lose money on paper in the short term, and (2) you know enough about a company’s fundamentals to believe the stock really is cheap.

This whole contrarian approach to finance won’t make you very popular at dinner parties, but it just might help you avoid debt and build wealth. For that, I don’t mind occasionally being called a “party pooper.”


  1. Frugal Dad,

    I know exactly what you mean. I’m about to be 28 and I feel like I have nothing to show for it. With student loans I actually have about 160k less than I started my 20’s with. How awful a feeling. And I don’t even feel I have the job stability you did at my age. My wife and I have about 450k in debt total, if you count our mortgage. Since we just bought our house we have basically nothing in savings. We’re frugal…we just had a combined 14 years of “higher education”. Then I have friends who make $130 an hour as plumbers and have been working nearly 10 years. They have tons of money in the bank. Crazy. We keep pushing college but I believe trades are the future. Everyone has a college degree. Not too many people can fix a toilet.

    • You guys both have it right. I need to get working on a skill that is actually useful It’s embarrassing, but I have never even changed the oil in my car myself.

    • That’s an awesome point. I wonder if I should start learning my blacksmith skills now or later? Or maybe I’ll be a tanner….probably not too much competition for that one. Everyone has been “keeping up with the Joneses” in terms of education. “Oh dear….I can’t have my kid be the one kid on the block who DOESN’T go to college—even if he or she lacks aptitude or interest. I’m a lawyer in my day job….and even if I earned more money from my copywriting/freelance writing business—it would still be a failure if I was no longer an attorney. Strange.

    • Along those same lines, I’ve been considering taking a course in mechanics to make repairs on my 21 year-old van, that I still like to drive from time to time. A side benefit would be adding auto-repair skills to my “toolbox.”

  2. Hey, your contrarian investor method is perfect! I’ve been trying to retire by 40 and, in addition to real estate and other investments, I’ve taken to active stock picking with one of the main strategies being contrarian. Do I picked up BP, Mattel when they get a bit of lead in the toys, various mining and casino stocks when they get into legal or permitting troubles, etc. I wrote about it in All-In: How I Made $800,000 in a Lifetime and $15,000 Last Week.

    To FreelancePF: You can get out of it! The same story above documents how I lost hundreds of thousands of real dollars, and millions of potential dollars. Investing is the way, at least as far as I`ve found. Just keep doing it. BTW, I agree that college degrees for a job aren`t all they`re cracked up to be. Go to higher education because you like learning, not necessarily for a job.

  3. HI! I’m a regular reader (unfortunately a lazy commentator) and very much enjoy your blog and insights.
    My favourites quote popped into my mind while reading this post…

    “It is no measure of health to be well adjusted to a profoundly sick society” ~Jiddu Krishnamurti

    Greetings from across the big pond!
    Katja 🙂

  4. I appreciate your thoughts. I’m 31 and thankfully received a pretty good heritage from my folks regarding money. My family is debt free (excluding the mortgage), I have mutual fund investments in both Roth-IRAs and regular taxable accounts. Thanks to comments you made a few months ago I began looking into dividend stock investing and have made that my primary taxable-account investment vehicle. Still contributing to the Roths but your comments above are adding to my ongoing internal discussion on whether I should continue contributing there or not. My income/job and future retirement are fairly secure but they are fixed and I’m always interested in expanding my income stream. Also on my mind is how aggressive should I be on paying off my mortgage? Not soliciting advice, just pondering out loud. But again, thank you for your informative, stimulating, and encouraging posts.

    @ Freelance- I completely agree with you on the so-called benefits of college. With my two kids I have no intention of forcing them to attend college (as my wife’s family insisted they do)…nor to I intend to cover that pursuit should they go that route (now, I’ll be a dad and help, I’m sure, but they will not get a carte blanche check to party for 4+ years).

    • Ben,

      Your finances will be better off. Your kids probably will be as well. Most kids spend more time at college learning how to do a keg stand than learning how to make a living out in a sometimes cruel world.

    • When we first became debt free except for the mortgage several years ago, we were very aggressive in paying down the mortgage. Then life began to happen. Our oldest needed braces – 6k. One kid ended up in a private school so that meant tuition for her – 10k a year. Son “needed” pitching lessons, which run around $600 for a set of 6 lessons. And his braces are coming soon. And on and on. We could forgo anyone of these expenses but for sure our kids’ lives are enriched by every single one of them.

      Our mortgage with its associated taxes and insurance no longer upset us. We have to pay to live somewhere. The amazingly low $1600 we’re paying in PITI each month would be hard to match even in a big enough apartment in a safe neighborhood.

      Our mortgage is low and it’s on a 15 year plan, so we choose not worry about it. We focus on building up our savings, particularly since we have kids because we never know when something is going to come up that can help them realize their potential and more to the point, would make us feel guilty if we’re unable to provide it for them.

  5. I feel in a lot of ways like the last few years has been completely lost. We’ve committed to paying down debt as the best way to raise our net worth. It’s a foundation that we know will pay off in the end.

    Great article, I plan on featuring it in my weekly roundup tomorrow.

  6. Like a lot of people, I’ve taken a hit the last few years. But, not as bad as many. I’m a bit weird in that I have always hated debt. Not wealthy, but few financial worries due to frugal living.

    I’m less of a contrarian investor, and more of a steady as she goes one. That approach works for me. But may not be right for others. I do agree with you about paying off debts when others are increasing theirs, and having an emergency fund in case it is needed.

    As far as following the heard. I often wonder about people who were buying houses, stocks, etc when they were at the peak. How many panicked and sold everything when the markets hit bottom?

    • I imagine many people did exactly that. If you panick in either direction (at the top or the bottom) you’ll get dinged pretty hard in the net worth column.

      The sad thing is those with the really big bucks make money in both scenarios off exactly those types of people (shorting stocks as they are dropping and then scooping up bargains when everyone else is out and riding the mad scramble back to the top). It’s a cycle that seems to repeat itself.

  7. An optimist says the glass is “half full”.
    A pessimist says the glass “half empty”.
    An existentialist says the glass is “just there”.

  8. We left the herd:>) We are winding our way OUT of the market right now- just as we did when it was at 14,000. We doubled our money by investing and saving in the last three years- which helps us see that pulling out now won’t hurt. VERY contrarian!
    The only problem is– once you are used to making 20%- it is difficult to go back to making .01%! I do know it will all be there in the morning.
    Now that bin Laden is gone we are reconsidering a new strategy. Let the next election cycle go through and see what is moving again.
    As for college- it is something NO ONE can ever take away from you. One of my kids has one- the other doesn’t. They both have excellent jobs—but if things got rough I still feel the college degree kid will do better. They BOTH know how to wire a circuit and fix a toilet!

  9. Great article. I must say, we have been lucky to pay off our debt, with the exception of our mortgage. That is our current goal along with saving. Being younger adults in our later 20’s we find we stick out like a sore thumb when it comes to our peers. We seem to be the only ones that think about all of this financial stuff. Sometimes I can’t help but wonder if we have grown up too fast. I just try to remember that we will be so much farther ahead of the game and that will pay off.
    Thanks for sharing such great tips and thoughts.

  10. Great article! You made a lot of excellent points. I do disagree with you about colleges raising tuition ‘because they can’. My husband works in higher education as director of facilities. The last few years have been unending budget meetings and discussions for cost savings, etc. The funding cuts have been HUGE, and very difficult for colleges to manage. They still have so many requirements, and the funding cuts were more than most imagined. After two years without a pay increase and increases in his benefit costs and looking into a future with no pay increases and more increases in costs, he took a job in another state with better funding. But at least for the college that he worked for before and the one he works for now (both community colleges), increases in tuition are not taken lightly, and are not done without a thorough evaluation of what other cuts could take place. His old workplace lost quite a few people through attrition and didn’t replace them, which is one reason they didn’t have official salary cuts. I can’t say if it’s different for universities. I know that the community college executive staff members that I have known are very sincerely concerned for the students and HATE raising tuition. Of course, two colleges out of thousands is a pretty limited survey. 🙂

  11. Frugal Dad,

    This is one of the best posts I have read from you (that says a lot because all your posts are good!). I agree with almost all your points and only wish (like you do) that I had spent a whole lot less of my years in the “heard” and more years being the “contrarian” my husband and I are working towards this now. Paying down our high interest debt (almost done!) and then focusing on savings, paying down out big debt (mortgage) and educating ourselves (for both work related things and practical things) so that we are better positioned for whatever the future brings. Great article – I will be sharing this with my family!


  12. Learning to “not spend” is the great lesson one can learn, I think.
    (Investing is different)…. Being debt free and staying that way seems to be the best path to a simple retirement.

    This is a good post! Doesn’t matter what others think of our investment strategies, as long as we are secure in what we are doing 🙂

  13. We kept putting off figuring out what to do for investing. We would go talk with investment brokers (or whatever they are called) and would leave says “I could do that”, but never did. We have no aptitude or interest in finances.
    So, we found a local company that takes care of our finances (since we have saved up enough, the annual fees are the lower tier, but we still pay for it. We knew we did the right thing when we met last year in Oct, and he reviewed our taxes. He said we would be paying a few thousand dollars to uncle Sam, because of my wife returning to work. He advised me to max out my 401K at work for Nov and Dec, and add as much as I could to the Medical investment fund (which is tax free). We did that and saved a lot more than the fee for the first two years.
    I’ve though of looking into figuring out my taxes early for years, but never have. I am glad we started this last year!

    PS: I really like the Frugal Dad, great articles.

  14. We must be built from the same mold – I have had a similar experience as you and am in the process of breaking out of the herd. Absolutely great advice.

  15. Nice article, eye-opener. Good points were set and I cant help myself but smile when I read about the budget envelopes, it did work for me!
    Premium job search assistance –

  16. I’m following the herd actually! After finding out about personal finance blogs and the debt snowball method ala D. Ramsey I’m on it! The first thing I do when I get to work (I know I know, tsk tsk) is spend about 10-15 skimming my preferred PF blogs.

    I’m 25 years old, turning 26 this year and I’m hoping I’ll be out of debt by 2012.

  17. It seems I recently read about another contrarian investor who has done pretty well for himself. What was his name again? Oh yeah…Warren Buffett.

    And I love it that you’re banging the drum about student loan debt. This generation of students is going to be hamstrung when they decide they want to start a family or buy a house.

  18. I agree with everything except investing in nuclear, oil or coal companies. All have the potential to cause major environmental damage, and all are doomed to become obsolete as soon as any other viable alternative is found. I’d invest in solar, wind or hydro-electric power first. My cousin is sitting on some BP stock purchased before the spill, and I feel bad for him, but I wonder why he invested in oil at all.

  19. When it comes to making investment decisions, I always go against what everyone else is currently doing

  20. Excellent article! I too am a mid-30’s contrarian. When my wife and I bought our first home in 2007, we were looking for an affordable, smaller, starter home while our friends & coworkers were looking to get as much home as the bank would let them have. In fact, the loan officer at our bank laughed (literally laughed out loud) when we told her the small amount that we wanted to borrow to buy our home.

    Fast forward to the present, and while our friends are still trying to “grow into their mortgages” or deal with their homes being underwater, we are renting out that small starter home and using the proceeds to build our dream home. It’s great because I can build for much less now because all the home builders in our area have no work and the competition is fierce.

    Sell when everyone is buying and Buy when everyone is selling.

  21. Re: Student Loan Debt
    I read this week that students THIS decade are graduating with Double the debt of the others.

  22. With regards to student loans, I agree that instead of getting a student loan why dont you just save some money first. First of all, debts increase at a certain time to a certain percentage. So the longer it takes for you to fully paid your debt the higher interest it gets. “We help Americans find jobs, prosperity and explore Asia.”For details, visit

  23. Nicely written! My multi-million dollar mother lived by this and is doing very well indeed. You should also mention that when you have your investments with a respected CFP and somthing doesn’t seen right, LISTEN! I stayed way too long with his firm (also a friend, BTW) and lost considerable retirement investments. I well into retirement years and I am working because I have to. It is a different thing to work because you want to.

    At 35 or so DON’T appologize for being a contarian!!

    • Floyd, if you are now managing your own money, here’s a free site I found useful. The owner is a CFP who will manage your money if you have over $200,000 to invest, or will explain on the website for free how to manage your own money if you have under $200,000 . You will still need a tax accountant and financial planner, but they won’t be managing your money, you will.

  24. Breaking away from the herd is wise advice, especially when it concerns your personal finances. Warren Buffett always said the best time to get into the market was when everyone else was getting out!

  25. I’ve enjoyed reading some great insight in your post. I’d love the part about Pay Off Debt When Everyone Else is Borrowing. Keep it up! I’ve bookmarked your site so from time to time, I’m gonna be checking on it. Thank you.

  26. Frugal Dad, another excellent post! I have been a “dividend” investor for about 5 years now. Currently, I am making 4-22% on the stocks that I have purchased. Sure beats a 1% CD at the bank!!! I see these 25 year old kids driving around in vehicles costing $35000-$50000. If instead they would invest that money wisely, they could became very wealthy. If they would invest $35000 and never add any thing to it, when they turned 75 years old , they would have 10 Million dollars! That’s figured at 12% interest. Some finance experts claim that the long term return of the stock market has been 12%. If he would invest $50,000 the figure goes up to 14 Million dallars. How about this plan for the 25 year old kid. Start investing $100 a month, every month for the next 50 years. At 75 he would have 4 Million dollars to retire on!!! Out of that 4 Million dollars, only $60,000 is actually contributions, the rest is interest! I got these figures from a wonderfull website that I ran across. It’s called “”. How I wish I knew about this information 40 years ago! The Claymobile.