Contrarian investing
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Contrarian investing is an investment strategy that is characterized by purchasing and selling in contrast to the prevailing sentiment of the time.[1]
A contrarian believes that certain
Some contrarians have a permanent
Similarity to value investing
Contrarian investing is related to
In the example of a stock that has dropped because of excessive pessimism, one can see similarities to the "margin of safety" that value investor Benjamin Graham sought when purchasing stocks—essentially, being able to buy shares at a discount to their intrinsic value with an additional margin to adjust for possible errors in one's calculations. Arguably, that margin of safety is more likely to exist when a stock has fallen a great deal, and that type of drop is usually accompanied by negative news and general pessimism.
Along with this, although more dangerous, is shorting overvalued stocks. This requires 'deep pockets' in that an overvalued security may continue to rise, due to over-optimism, for quite some time. Eventually, the short-seller believes, the stock will 'crash and burn'.
Notable contrarian investors
- Bill Ackman is a contrarian investor who twice reinvested heavily in beaten-down Valeant Pharmaceuticals against prevailing market sentiments. Later, he short-sold Herbalife, but was forced to take a large loss after the stock failed to fall as predicted.
- shortsightednessof the market has beaten down the price.
- Keith Gill is a contrarian/value investor who produces educational YouTube videos, publicizing his bullish position in a company (GameStop) that most saw to be on its deathbed. His gains in that one stock surpassed 10,000% in under 1 year, maxing out at 44 million dollars before the stock dropped dramatically. He has since doubled his position in anticipation of more growth, and has seen more than 500% additional growth since doubling down.
- Ryan Cohen is a notable contrarian/value investor. He was able to best Amazon, against public opinion, at online pet product sales and delivery through the company "Chewy." Cohen was able to sell Chewy for $3.35 billion. He has since taken a large enough stake in a company called GameStop to have more shares than any other individual. He has taken an aggressive activist value investor position in the company, and is up for the chairman of the board position. He has hired seasoned e-commerce specialists from executive positions in both Chewy and Amazon to take on leadership roles in GameStop moving forward.
- Dodge & Cox is an American investing firm whose approach has been characterized as contrarian.[3]
- Michael Lee-Chin is a Jamaican billionaire investor who is often associated with contrarian investing.
- Jim Rogers is an investor and author who is bullish on contrarian investing in Asian markets.
- Marc Faber is a contrarian investor who publishes the Gloom Boom & Doom Report.
- Forbes magazine.
- John Maynard Keynes was an early contrarian investor.
- John Neff, who managed the Vanguard Windsor fund for many years, is also considered a contrarian, though he has described himself as a value investor (and questioned the distinction).
- Mark Ripple is a money manager often described as a contrarian. He has authored a book covering the topic in detail.
- Paul Tudor Jones is a contrarian investor who attempts to buy and sell turning points.
- Howard Marks regularly focuses his client memos on contrarian investing.
- Humphrey B. Neill has been described as the father of contrary investing; see his book cited above.
- Allan Gray was a noted South African contrarian investor that believed the best value was typically to be had when the market was down.
- George Soros is often described as a visionary contrarian investor by analysts who cite his famous shorting of the yen and pound, an act that netted him $2 billion in profits.[4][5][6][7][8][9][10][11][12][13]
Examples of contrarian investing
Economist
Commonly used contrarian indicators for investor sentiment are Volatility Indexes (informally also referred to as "Fear indexes"), like VIX, which by tracking the prices of financial options, gives a numeric measure of how pessimistic or optimistic market actors at large are. A low number in this index indicates a prevailing optimistic or confident investor outlook for the future, while a high number indicates a pessimistic outlook. By comparing the VIX to the major stock-indexes over longer periods of time, it is evident that peaks in this index generally present good buying opportunities.
Another example of a simple contrarian strategy is Dogs of the Dow. When purchasing the stocks in the Dow Jones Industrial Average that have the highest relative dividend yield, an investor is often buying many of the "distressed" companies among those 30 stocks. These "Dogs" have high yields not because dividends were raised, but rather because their share prices fell. The company is experiencing difficulties, or simply is at a low point in their business cycle. By repeatedly buying such stocks, and selling them when they no longer meet the criteria, the "Dogs" investor is systematically buying the least-loved of the Dow 30, and selling them when they become loved again eventually.
When the
The
Relationship to behavioral finance
Contrarians are attempting to exploit some of the principles of
See also
- Swing trading
- Bollinger Bands
- Dow Jones Indexes
- Value investing
- Trading strategy
References
- ^ "Contrarian". Investopedia. Retrieved 15 June 2015.
- ISBN 9780870044885.
- ^ "...the managers [at Dodge & Cox] deftly handle this strategy’s contrarian, value-seeking approach. They look to invest in businesses they believe have competitive edges, good growth prospects, and capable leaders, but whose shares have suffered because of bad news or temporary economic headwinds". Tony Thomas (10 June 2022). "All Around Winner". Morningstar.com, accessed 14 August 2022
- ^ "George Soros: The Contrarian Investor That Wins". Valuewalk. 26 July 2016.
- ^ "George Soros: The Contrarian Investor That Wins – ValueWalk Premium". 26 July 2016.
- ^ Mason, John M. (16 August 2016). "Contrarian: George Soros | Seeking Alpha". Seeking Alpha.
- ^ "The Investing Style of George Soros - How famous investors invest". Archived from the original on 2021-06-11. Retrieved 2021-07-08.
- ^ "George Soros Investing Strategies No One Told You". 16 January 2017.
- ^ "Lessons from the world's most famous contrarian investors. - Cafemutual.com". Cafemutual.
- ^ "'The Market is Always Wrong': In Defense of Inefficiency". Forbes.
- ^ "Billionaire George Soros is Betting Big Against These 2 Pharma Stocks". 18 December 2017.
- ^ "How contrarians got it wrong in 2013". CNBC. 19 December 2013.
- ^ "Independentreserve.com/au".
- ^ "Shareholder".
- SSRN 2287262.)
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: CS1 maint: date and year (link - ^ Rosevear, John (25 April 2015). "Fidelity Contrafund: Beating the Market the Old-Fashioned Way -". The Motley Fool.
- .
External links
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