The Sage of Saxtons River
In 1992, I stumbled on a little book with the title The Art of Contrary Thinking by a man I knew nothing about, Humphrey B. Neill. I was only 20 years old, but it would make a lasting impression. Even today, I still have that same book, which I pull out and browse through when I feel the press of mass opinion wearing me down.
If you don’t know about Neill, you are in for a treat. He was the kind of investment thinker that is always in short supply. Neill was born in 1891 and died in 1977, after a long crusade against sameness in thinking. He had a full life. An old US Army hand, he saw action hunting down Mexican revolutionary Pancho Villa. Later, he served under General John “Blackjack” Pershing in World War I and held the rank of lieutenant. For our purposes, his greatest contribution was as the “father of contrary opinion,” as Life magazine dubbed him in a 1949 piece.
Neill plied his trade far from Wall Street. He lived in an old 18th-century farmhouse in the hamlet of Saxtons River, VT. It had been in his family since 1828. Nearby, he had an old barn filled with books and business periodicals. And out back, down by a little stream, he would ruminate on the markets of the day and pen his thoughts to subscribers of his newsletter, Neill’s Contrary Opinion.
Here is how one letter opened, written only 10 months after the 1929 crash:
I am writing now in the shade of a 125-year-old maple and can look through its massive branches to green pastures beyond. A delightful, century-old house and neighborly barns somehow bring a quieting philosophy and a peaceful perspective upon the problems of Wall Street. One needs to get away frequently in order to realize that market fluctuations are not the all-important facts of life.
Neill chose as his pen name, the Vermont Ruminator, after a favorite passage from Charles Dickens’ Pickwick Papers. Mr. Pickwick enjoyed “ruminating on the strange mutability of human affairs.” And so did Neill.
His main challenge to readers was to get them to question the consensus. He ruthlessly sought out the unchallenged assumption, probed what was taken for granted and turned convention on its head. He was leery of crowds, because financial history was full of manias and crashes that could only come about when many people start drinking from the same bottle. As he put it:
Inasmuch as it is impossible to accurately time the reactions of the crowd, it is advantageous to consider the opposite of what appears probable. The crowd has been so wrong so frequently in their opinions…that it is imperative to look on the unsuspected side of all questions and all predictions.
In his classic book and letter, Neill would pile on the evidence, citing forecasts that had gone awry and historical examples of the madness of crowds. He liked to dig through old books and share ideas from more obscure thinkers on crowd behavior, citing the work of Gustave Le Bon and Gabriel Tarde and others. Most people are quick to conform and slow to differ. Neill aimed to turn that around.
A long list of luminaries and Wall Street heavyweights swore by his advice. Neill wrote his last letter in December 1974. He was 84 years old. Neil went out on a high note, calling for an end to the bear market that had cut stock prices in half. It was a nutty opinion to have at the time. But he was right. In 1975, the S&P 500 rose 54%. They don’t make many like old Neill.
“Investors Intelligence flags a 52.2% share of bulls in its poll, versus a mere 22.3% in the bearish camp,” observes economist David Rosenberg. Last August, by contrast, just as the market was about to embark on a major rally, the Investor Intelligence polls showed there to be only 29.4% bulls and 37.7% bears. Clearly, bullish sentiment remains the predominant emotion. That’s not a constructive sign for the overall stock market.
At the same time, macro-economic and geopolitical risks are on the rise. So now might be a good time to put some of that contrary thinking in action and be careful. Let’s not be too eager to invest our fresh cash.