Unconventional aggression – Key to “contrarian investing”

Investment

oi-Sunil

By Sunil Fernandes

Published: Saturday, November 9, 2013, 9:30 [IST]

Some traits in ‘contrarians' make them stand apart in the world of investments. Some investors believe in the dictum of ‘discretion is the better part of valor', they would rather wait for the dust to settle down rather than catch a falling knife. However, contrarians are opposers by nature and would hence try and catch the falling knife rather than weigh their chances when the dust settles down because it is quite likely that there will be no bargain when everything gets back into the groove.

Contrarians are iconoclastic and they break-away from the conventional method of making an investment. This can often be a lonely path to traverse, but then again ‘fortune favors the brave' and contrarians are brave hearts who do not shy away from making unusual investment decisions.

A success story of contrarian investing

Coming back to the success story of Sir John Templeton, in 1939, as a young farm boy, John went into his boss's office and begged for a $10,000 loan. His boss granted him the loan and John did not waste time. He went out and invested it in small-cap stocks trading on a major exchange for $1 or less. The stocks numbered 100 in all, and all of them were in the ‘most hated stocks' category. Subsequently these 100 stocks bailed the U.S. out of the Great Depression and catapulted Templeton into the -Investing Hall of Fame.

Today Templeton is worth more than $2 billion and the fund bearing his name is making money for a lot of investors. Templeton's contrarian views thus stood him in good stead and proved emphatically that ‘going against the tide' has its virtues. His contrarian approach and contrarian investment strategy brough him the success.

Contrarians and their contributions in "Contrarian Investing"

Not all investors can be contrarians. For an average investor to become a contrarian would logically entail a lot of study and an uncanny knack for picking up bargains. Jim Rogers, Marc Faber, John Templeton, Sam Zell, Eduardo Elssztain and Gorge Soros are famous contrarians who have made it big in the world of investment. Among the tips they have shared are:
1. Identify an area which has a good prospect but is outside the normal conventional options. E.g. Going into agriculture as Jim Rogers did because farming is an area which is going to receive a lot of attention with time as lesser people are going to be involved in the production of more food for feeding the earth.

2. Try to follow the course which is opposite to custom and more often than not you will come up trumps.

3. Go in for an investment asset class when the prices are down,

4. Acquire a strong sense of ‘intrinsic value' and ‘margin of safety' as they are useful tools to assess a decision.

K. Ramalingam is the chief financial planner at holisticinvestment.in, a leading financial planning and wealth management company.