Contrarian opportunity in April 2025
April 2025 delivered one of the most emotionally jarring sequences in recent market history. The major equity indices—S&P 500, NASDAQ, and MSCI World—plummeted nearly 10% in the first two trading days when headlines were dominated by fears of trade war escalation. Yet by month-end, these indices had remarkably rebounded, sitting within 1% of their levels at the start of April.
Technology and growth stocks, which had shown vulnerability in Q1, mounted a partial—but strong—comeback.
Other asset classes, however, remained curiously composed. U.S. Treasuries, which usually act as a refuge in turbulent times, were notably subdued. Unlike past crises where yields fell in flight-to-safety trades, this time they held steady—perhaps reflecting concerns not about the broader economy, but about the credibility of the U.S. government itself. One early sign: a rise in the U.S. sovereign CDS spread, suggesting investors are beginning to hedge against previously unthinkable risks.
The dollar continued to weaken, and gold rallied 5.3%, reaching $3,500. Bitcoin outpaced even that, soaring 14.1% during the month.
Despite chaos, the market demonstrated once again its resilience—defying expert consensus and rebounding with a speed that left many unprepared. As we’ve seen repeatedly over the past five years, markets tend to “get it right” more often than the experts and recover faster than anticipated.
On Risk and Action: What We Know, What We Don’t
Howard Marks quoted Marc Lipsitch in saying that most decisions rest on three pillars: facts, informed extrapolation, and speculation. In April, we had few facts, questionable parallels, and abundant speculation.
No one knew where we were headed. In such conditions, paralysis masquerades as prudence. But choosing not to act is, in fact, a decision—one that carries risk of its own.
Many investors, terrified by the falling knife, chose to “wait for the dust to settle.” It sounds sensible—but often isn’t. As Marks noted, “When the time comes to buy, you won’t want to.” And so it was: the window of opportunity lasted barely a week.
Despite the fear, the market bounced. Those who acted—cautiously, deliberately—were rewarded. Those who waited may have missed it.
Valuation Context: High Prices, Low Promises
Today’s P/E ratio sits at 22—well into the top decile of the past 27 years. Historically, when investors bought the S&P at similar multiples, the 10-year annualized returns hovered between +2% and -2% according Howard Marks.
At the same time, indicators of consumer health are flashing red. As Michael Snyder noted, consumer sentiment has plunged and nearly three-quarters of Americans now report feeling “financially stressed.”
Thus, while the April dip may have been an opportunity to buy, it was not a guarantee of long-term high returns. Prudence suggests participating in the recovery to avoid underexposure—but without illusions of imminent windfalls.
Contrarian Thinking
Buying into a falling market is a quintessential contrarian move. The idea is simple: when others sell, you buy. But it’s only simple on paper. It is based on mean reversion (i.e., that what goes down will almost always go back up. However, stock do not “always win in the long term” and historical data from the United States cannot be generalized or represent an assurance of future returns in real terms. And as Damodaran warns, the more time you spend watching financial news, the worse your portfolio may fare. Anxiety is contagious—and unprofitable.
For us, contrarian investing isn’t about being reflexively contrarian. It’s about being selectively contrarian—taking risks when the odds are skewed in your favor and the crowd is driven by emotion, not data.
There is academic and behavioral support for contrarian strategies, but they work only if one applies discipline. An investor should not “buy the dip” blindly. The dip must pass through a screen—profitability, stability, valuation, and quality. In April, one practical approach inspired by Aswath Damodaran with companies was to focus on markets and ETFs that lost over 20% in value between March 28 and April 18 and filter using “P/E ratios below 15” and “Dividend yields above 1%”.
Given the speed of corrections, acting without a framework invites regret. One alternative: develop pre-set rules and heuristics to deploy cash when volatility rises. For example, maintain a watchlist with target prices derived from historical P/E ratios. Use tiered allocation strategies: perhaps deploying 3-5x normal allocations over a 5-10 day correction window—staggered, and with a predefined point to stop if prices bounce.
Know Thyself
Even the most seasoned investors—Marks in 2008, or Damodaran this April—rarely act with full confidence in times of crisis. They act because they’ve reasoned through their logic and have conviction in the probabilities and recognize that market timing often hurts investors.
The investor’s temperament is critical. Being contrarian requires emotional independence and internal clarity. If you are easily swayed by peer sentiment or emotionally strained by short-term losses, contrarianism may not be sustainable.
It’s also deeply situational. Age, liquidity needs, and health affect how much risk one should take. Volatility punishes both the overconfident and the unprepared.
A possible compromise? Adopt a mechanical structure with some flexibility—such as a cash reserve earmarked for downturns, rules for deployment, and strict position limits.
The markets don’t reward bravery alone—but they do reward action based on thoughtful reflection (some guidance here) ) taken in times of maximum uncertainty.
Sources
Aswath Damodaran, Anatomy of a Market Crisis: Tariffs, Markets and the Economy!, April 2025
Aswath Damodaran, Buy the Dip: The Draw and Dangers of Contrarian Investing", May 2025
Howard Marks, Memo: Nobody Knows (Yet Again), April, 2025
Marc Faber Will declining Asset Prices lead to a Reverse Wealth Effect and Recession?, April 2025
Michael Snyder, Consumer Stress Indicators, April 2025
Guide Finances 