Stocks can stay expensive for a long time. Never short a stock because you think it is expensive. I also learned that a deep-value long can stay cheap for a long time and that you must identify catalysts to unlock that value. Finding either real value on the long side or a compelling short idea is not easy. It requires peeling the onion back many layers to determine if consensus is right or wrong. Often times consensus is right and stocks are priced about right. I have always been contrarian, but over the years, and from the lessons learned from those great investors, I learned that being contrarian for the sake of being contrarian is not a sound investment philosophy. That fits my natural being - I am a skeptic and typically not one to join crowd-thinking. I have always gravitated to companies that have been out of favor on the long side and overly popular when looking at shorts. Mike Alkin, Chief Investment Officer and Founder of Sachem Cove Partners, LLC, a hedge fund focused on the uranium mining and nuclear power sectors, told me in an interview how he felt as an investor: The true contrarian waits for things to cool down and buys stocks that nobody cares about, and especially those that make Wall Street yawn. shorting a stock that everyone else is buying). The true contrarian is not the investor who takes the opposite side of a popular hot issue (i.e. Some have fancied themselves contrarians, believing that they can profit by zigging when the rest of the world is zagging, but it didn't occur to them to become contrarian until that idea had already gotten so popular that contrarianism became the accepted view. Peter Lynch wrote the following in his book One Up on Wall Street: Market, your peers, your friends, and/or your clients is difficult, even more so when the moment for celebration may be too brief and there will have very likely been mistakes along the way that restrain your joy (full satisfaction never exists).īut what exactly is being a contrarian investor? What does it really mean? Let me use a few quotes by great investors that I think define contrarian investing much better than I could do it in my own words. Looking like you’re wrong for a long time before Mr. Long periods of underperformance may be offset by short periods of huge relative returns.

It’s usually said that contrarian value investors look to be wrong most of the time, only to be proven right all of a sudden. The reality of the contrarian investor has some parallels to this, no doubt, but the struggle part - mainly intellectual, but it may even reach the physical as well - is ten times more prevalent, while the victory part is only an expectation that may never come to fruition in the worst-case scenario. Yes, a little bit of sacrifice, but totally worthy given you are doing what’s right and victory is awaiting. One might imagine oneself like a sort of film hero, going against the tide, fighting against the enemies and overcoming the obstacles on the way. A much tougher and darker story, as we will show below. Being a consistent contrarian is a different story.

Saying you are a contrarian investor sounds cool.

Contrarian investment newsletters for individual stocks