Contrarian Investing Articles
In a series of contrarian investing articles, Michael Wilson takes
a look at five unpopular indices and analyses what they have in
store for the year ahead
Ask Warren Buffett how he got so fabulously rich, and he’ll
tell you it was by picking up the garbage that other people didn’t
want and then by keeping it until they wanted it back. When the
herd is rushing in one direction or another, as it generally seems
to do, he says it’s all too easy to forget that there are
bargains being trampled into the pavement. All you need, it seems,
is the intelligence to spot the inefficiencies in the market, and
to master the art of contrapuntal investment.
Contrarian Investing Articles & Ultra Fashionable Stock
Look at it like this. When you absolutely must buy this year’s
ultra-fashionable stock, there’s quite a good chance that you’ll
sell past year’s unfashionable stock to raise the necessary
cash, so its price will fall. When you’re an index tracker manager,
you have to obey the call of your computer and dump perfectly good
equities even though you still happen to like them, so their price
will fall. When the market has decided that it doesn’t
want income stocks any more, then you’re likely to sell off
some of the best long-term investments you could possibly imagine
in your haste to get into out-and-out growth. And their price will
fall.
Even when real trouble does strike a company, the market invariably
overreacts in a way that can be better explained by wave theory
than by logic - it always goes far too low before it eventually
settles back at the right level. This is why a stout band of investors
have now developed the idea that it’s often better to run
in precisely the opposite direction to the herd when in search of
bargains.
Contrarian Investing Articles And Stock-Picking Techniques
These contrarians, as they’re known, have developed a whole
range of stock-picking techniques, from dividend investing and technical
analysis to cyclical theory and the so-called Dogs of the Dow technique,
which they insist work well - most of the time.
So over the next few months, we’ll be conducting a little
experiment at Investment International. We’ll set up a
portfolio consisting of exclusively unfashionable stocks to
see whether we can identify patterns that can help us protect
ourselves against downturns, while also picking up the occasional
nugget of pure gold for the future.
We’ll also examine some of these weird investment techniques,
in ways that might just change the way you think about the markets.
Permanently.
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