Contrarian is an investment style that goes against prevailing market trends by buying poorly performing assets and then selling when they perform well. Contrarian investing also emphasizes buying out of favor securities with low P/E ratios. With the market at all time highs driven primarily by growth stocks, the contrarian view of shifting assets from growth to value is gaining momentum, filling the airwaves and TV shows alike.
At the start of the year, the broad view among contrarians was that the bull run in equities will be over soon, inflation will return and central banks are maxed out. Despite the fact that none of those predictions have played out, midway through the year, echoes of the same concerns are still being voiced by contrarian pundits on Wall Street. And so, the search for value stocks with low P/E’s, dividend paying stocks with increasing dividend payouts, international stocks with clean balance sheets etc. continues.
After all, it was Warren Buffett who advised investors to “be fearful when others are greedy, and greedy when others are fearful.”
Future Wealth’s View
Library shelves groan beneath the weight of books on the topic of contrarian investing, so who, one wonders, are not asking the questions that contrarian experts evidently think have occurred to them uniquely? Of course, every investor is concerned that there could be a correction and of course, every investor wants to continue to make money in up or down markets.
But, like all market timing strategies, contrarian investing is far riskier than a buy and hold investing strategy. Buying a well diversified portfolio of investments and hanging onto it through all the market gyrations is still going to result in the highest returns over the long haul. While it is true that one does not have to time the market to be a contrarian investor, believing that a company that has been beaten down, has long term potential and sticking with it requires enormous fortitude and is sometimes very painful. Just ask hedge fund manager – Bill Ackman about his Valeant Pharmaceuticals position. (Bill Ackman’s fund lost ~$4 billion on its Valeant holdings despite waiting 3 years for the company to recover from its woes).
At Future Wealth LLC, we stay away from market timing strategies and instead invest in fundamentally sound companies as a part of a well-diversified portfolio of investments for the long term, for our clients. In his 1923 book titled “A Tract on Monetary Reform”, John Maynard Keynes wrote – “In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past, the ocean is flat again.” The same can be said of the contrarians as well.