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

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.