While it may seem nuts to be thinking about buying anything now, it still makes sense to keep up with the contrarian signals. If you are going to be an investor (rather than a trader) you have to consider buying after the market has fallen. After all, how can you buy low if you don’t? The idea behind contrarian investing is that when most are bearish, it pays to be bullish. After all, those bears will eventually turn to bulls and will act on that. If you are already in the market when that happens, you’ll benefit. The same is true of the opposite situation. If the vast majority are bullish, it pays to be bearish on the theory that eventually the bulls will turn to bears and sell.

Merrill Lynch’s monthly survey of fund managers was just released and it is one of the most pessimistic ever (via WSJ’s MarketBeat):

Merrill Lynch’s monthly fund manager survey, released Wednesday, serves as a nice snapshot for just how frightened the investment community was last week. Fund managers soured on global growth, investing in China, commodities and emerging markets in favor of higher cash levels and keeping their heads covered.

Calling the October survey “one of the most pessimistic we have ever conducted,” Gary Baker, equity strategist at Merrill Lynch, notes that institutional fund managers “believe that the world is in recession, that monetary policy is too restrictive, and that companies should use what cash flow they have to rebuild balance sheets.”

Interestingly, almost half (43%) of the managers believe stocks are undervalued. That’s the highest reading in over a decade. So if they think stocks are undervalued, why are they bearish?

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