Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Contrarian Investing - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 20, 2008

    Contrarian Investing

    Contrarian investment strategy can be defined as acting in a manner contrary to the conventional stock market wisdom at any particular time. It is a preference for fundamental analysis in picking individual stocks, while ignoring the overall trends in the market.

    George Soros is among the most famous contrarian investors of our time. Along with Jim Rogers, he created the Quantum Fund based on a contrarian philosophy. The fund went on to give returns of about 4000% over a period of 30 years. The most famous contrarian move that George Soros made was going short on the British pound and earning US$1 billion in a single day in 1992. Rogersís famous contrarian bets were getting into the equity market in the early 1980s when most of investors avoided them and into the commodity markets in 1990s at the peak of the dot com boom.

    In the conventional model, investors look favorably upon stocks that are rising in price and shy away from those stocks that are falling. This approach causes investors to overlook quality companies with prices that have fallen because of events or perceptions that are temporary in nature. Contrarians behave in a manner opposite to the majority and buy when stocks are falling in price. The philosophy behind it is that out of favor companies involve less risk, since purchase are usually made at the low end of valuation cycles.

    Contrarian investment encompasses several themes such as picking up neglected stocks with strong asset values, under-owned sectors with high growth prospects, companies with latent earnings potential etc.

    How to apply contrarian investment strategy

    By focusing on stock selection: An investor should focus on fundamental analysis of a company rather than following the market trends. He should look for value hidden in the company and try to pick them up before others realise the potential locked in the company.

    By changing the diversification strategy: A contrarian investor should reduce his over diversification and commit a large amount to few stocks where the odds weigh heavily in his favor.

    By accepting market volatility: A contrarian needs to accept the volatility of equity markets. By maintaining plenty of cash through bull and bear markets, he can deploy funds during price drops.

    By concentrating over absolute return than relative returns: A contrarian investor should not worry about index. An investor should plan how much cash he needs at the end of his investment time horizon and should try to perform in line with that strategy. By doing so, the investor will be more focused on his individual portfolio instead of worrying about the index performance.

    A word of caution
    Contrary thinking is emotionally demanding. It requires courage to stand alone when there is a great deal of pressure to follow the majority. The key to contrarian investing is making independent decisions and believing in them. And finally, it requires patience.



    Equitymaster requests your view! Post a comment on "Contrarian Investing". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Which Gods Will Bring Down the US Empire? (Vivek Kaul's Diary)

    Aug 17, 2017

    Mr Trump is in the White House and the gods are in their heavens; what's not to like?

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 17, 2017 (Close)