Where true contrarian investors will find outsized returns in 2008.

John Neff told the world, “It's not always easy to do what's not popular, but that's where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized.”

Although he refused to be pigeonholed, Neff was as contrarian as they come. He zigged when everyone else zagged. His favorite investment tactic was to buy on bad news that would send a stock’s price plunging in a matter of minutes.

Neff consistently bucked the trend all the way to an average 13.7% as the manager of Vanguard’s Windsor Fund over more than three decades. Meanwhile, the S&P 500 Index averaged annual 10.6% returns.

Neff had an immensely successful investing career and has “contrarianed” his way to being known as one of the greatest investors of all time. But I’m afraid true contrarians are getting harder and harder to find.

For years, contrarians bought real assets like commodities, gold, real estate and other tangible investments. They fled the U.S. dollar and looked for assets that would increase in value relative to the U.S. dollar.

What was once contrarian thinking, however, is now becoming the mainstream. Gold has kicked off the year surging to a new 27-year high. Oil ran past $100, nearing its inflation-adjusted all-time high of $101 a barrel. Real estate values around the world from Moscow to Tokyo to Shanghai are sitting at price levels never seen before.

But after years of making big gains in real assets, hedge funds, endowment funds and mutual funds, the mainstream investment community is nearly completely focused on commodities. And I’m starting to wonder, Where have all the contrarians gone?

Almost every investor I’ve talked to in the past few weeks foresees $1,000 gold, $120 oil and higher prices for copper, nickel, molybdenum, tungsten, global real estate… pretty much anything real and that would appreciate when the U.S. dollar falls.
The key to contrarian investing is doing what everyone else isn’t. That’s why, when everyone is bullish on real assets, I get a little concerned over how much is left in the run?

Then, a few weeks ago I happened to get my hands on a report that really got me thinking. The report contained the top commodities trades for 2008, as recommended by Goldman Sachs.

Normally I take everything that comes out of Wall Street with a grain of salt. But since the elite investment bank was one of the first major banks to turn bullish on commodities, successfully predicted the subprime-lending crunch with impeccable timing -- it went as far as shorting subprime debt and profited from the pinch all summer long and is now under investigation for their uncanny accuracy -- and have been on an overall real hot streak, I’m much more inclined to listen.

As I paged through it, forecasts for 2008 of an average price of $95 for a barrel of oil, another 10% gain in the value base metals… you know, nothing too bold. (Goldman is still a Wall Street firm, mind you.) However, a few pages after that, I caught this headline: “Precious Metals: Up Goes the Dollar, Down Goes Gold.”

Lunacy! Foolishness! How could they say such a thing?

Then I remember John Neff’s words and, more importantly, his track record of results: “It's not always easy to do what's not popular, but that's where you make your money.”

Could it be true? The dollar isn’t going to collapse in 2008. In fact, Goldman expects a strong rebound in the U.S. dollar. But more importantly, it expects gold prices will close 2008 at $750 per ounce (of course with the caveat of very high volatility).

Expectations like these are truly contrarian thinking right now. In the mainstream, industrial and base metals are out (for instance, copper prices are down more than 25% from their 2007 highs) and precious metals are clearly in fashion with gold seeming to set a new high every day.

I’ve got to agree with them in this case. Gold buggism has swept the investment world. Predictions for gold at $1,000, $1,500 or more are starting to show up in too many places for me. Now is the time to think like a contrarian in the precious metals market.

After all, the U.S. dollar has held up this long and there aren’t too many reasons to bet against it for the rest of 2008. Consider this: Since the greenback has started to really fall over the past couple of months, U.S. exports have increased in virtual lockstep.

Right now, U.S. exports are growing three times as fast as imports. Think about it -- three times as fast. It’s Adam Smith’s invisible hand at work. And if the dollar falls even more, export growth will accelerate even faster.

That’s why, at my premium investment advisory, BreakAway Investor, we still consider the U.S. markets quite viable. We can’t forget the U.S. is still good at something. We have solid leadership in biotech, technology innovation, agriculture and a few other industries that are growing stronger and stronger. We can’t just pass them by.

Most of the world is zigging towards gold and out of industrial base metals, and for the time being, now is probably a good time to zag away from gold and into industrial and base metals.