CONTRARIAN Portfolio
10 Stocks Portfolio for Bold Investor
The Art of Dis-Agreeing and Making Money
(Part of STANDARD PORTFOLIO ADVICE service)
WHAT IS THE MEANING OF CONTRARIAN INVESTING?
Some characteristics of a Contrarian investment in our view,
- Stocks/sector not performing or even making lows.
- Company’s stock out of favour due to transient reasons or for no reason at all
- Company’s stock out of favour due to short term events or one-off event tampering companies financials and business.
- It may be a stock from a sector that is performing well or even outperforming the market.
- The stocks are usually undervalued in one or the other ways.
- Some companies may have no profitability at all and incurring losses on books.
- Contrarian investing opportunity also arises due to resumance and end of bull markets and bear market cycles which create discrepancies in valuations.
- Portfolio reshuffling and rebalancing of big and institutional investors also tend to create contrarian investment opportunity.
- They are in sum buying stocks that are performing poorly or not so well as they should be (in your view) and selling when they perform .
- In our view, a true contrarian investing also takes features from true value investing principles.
- Also that contrarian investing in not just about buying or being bullish like a ‘contrarian investor’ but also selling or being bearish like one.
- Such other reasons.
“Your investment return will depend on how the stock will perform in future, and NOT how it is performing at present.”
-Deepak Amin
WHAT IS SO SPECIAL ABOUT CONTRA-10 or our CONTRARIAN PORTFOLIO of 10 stocks?
Nothing!
Genuinely, it is the time that is special and not our PORTFOLIO in particular. The market condition today have offered some of the best contrarian investment opportunities that has made it possible for us to create and offer you a compelling portfolio of 10 stocks which we can truly say contrarian yet compellingly fruitful and potential in giving returns.
Its possible that even you all agree when you read the bse codes and names of the stocks in it.
In fact the markets have been offering some of the contrarian bets in many sectors that are already leading the markets and are in uptrend and likely to remain so throughout this bull run or at least 2-3 years from now.
OUR APPROACH has been like ‘not to going against the market’, but ‘going against the market’s ignorance’.
We also don’t believe that buying in bad days (market correction or a bear phase) of markets is contrarian investing (as it is much popularized as meaning of contrarian investing) but instead buying in bad days of the sector/stock is.
CONTRARIAN INVESTING Success Stories:
According to our study, in general Contrarian investing has always succeeded if employed while keeping in mind principles of value investing and prudence.
We all know the biggest investor of all time Warren Buffett and many other iconic investors world over have praised contrarian investing and as well proved that this approach works to make big returns out of the markets.
Below is some of the stories taken from site investopedia,
Contrarian investors have historically made their best investments during times of market turmoil. In the crash of 1987, the Dow dropped 22% in one day in the U.S. In the 1973-74 bear market, the market lost 45% in about 22 months. The September 11, 2001, attacks also resulted in a market drop. The list goes on and on, but those are times when contrarians found their best investments.
The 1973-74 bear market gave Warren Buffett the opportunity to purchase a stake in the Washington Post Company (NYSE:) - an investment that has subsequently increased by more than 100-times the purchase price - that's before dividends are included. At the time, Buffett said he was buying shares in the company at a deep discount, as evidenced by the fact that the company could have "… sold the (Post's) assets to any one of 10 buyers for not less than $400 million, probably appreciably more." Meanwhile, the Washington Post Company had only an $80 million market cap at the time.
After the September 11 terrorist attacks, the world stopped flying for awhile. Suppose that at this time, you had made an investment in Boeing (NYSE:BA), one of the world's largest builders of commercial aircraft. Boeing's stock didn't bottom until about a year after September 11, but from there, it rose more than four-times in value over the next five years. Clearly, although September 11th soured market sentiment about the airline industry for quite some time, those who did their research and were willing to bet that Boeing would survive were well rewarded.
Also during that time, Marty Whitman, manager of the Third Avenue Value Fund, purchased bonds of K-Mart both before and after it filed for bankruptcy protection in 2002. He only paid about 20 cents on the dollar for the bonds. Even though for awhile it looked like the company would shut its doors for good, Whitman was vindicated when the company emerged from bankruptcy and his bonds were exchanged for stock in the new K-Mart. The shares jumped much higher in the years following the reorganization before being taken over by Sears (Nasdaq:), with a nice profit for Whitman. Thanks to moves like this, the Third Avenue Value Fund has earned a market-beating 14.3% return since Whitman founded the fund in 1990.
Sir John Templeton ran the Templeton Growth Fund from 1954 to 1992, when he sold it. Each $10,000 invested in the fund's Class A shares in 1954 would have grown to $2 million by 1992, with dividends reinvested, or an annualized return of about 14.5%. Templeton pioneered international investing. He was also a serious contrarian investor, buying into countries and companies when, according to his principle, they hit the "point of maximum pessimism." As an example of this strategy, Templeton bought shares of every public European company at the outset of World War II in 1939, including many that were in bankruptcy. He did this with borrowed money to boot. After four years, he sold the shares for a very large profit.
The 1973-74 bear market gave Warren Buffett the opportunity to purchase a stake in the Washington Post Company (NYSE:) - an investment that has subsequently increased by more than 100-times the purchase price - that's before dividends are included. At the time, Buffett said he was buying shares in the company at a deep discount, as evidenced by the fact that the company could have "… sold the (Post's) assets to any one of 10 buyers for not less than $400 million, probably appreciably more." Meanwhile, the Washington Post Company had only an $80 million market cap at the time.
After the September 11 terrorist attacks, the world stopped flying for awhile. Suppose that at this time, you had made an investment in Boeing (NYSE:BA), one of the world's largest builders of commercial aircraft. Boeing's stock didn't bottom until about a year after September 11, but from there, it rose more than four-times in value over the next five years. Clearly, although September 11th soured market sentiment about the airline industry for quite some time, those who did their research and were willing to bet that Boeing would survive were well rewarded.
Also during that time, Marty Whitman, manager of the Third Avenue Value Fund, purchased bonds of K-Mart both before and after it filed for bankruptcy protection in 2002. He only paid about 20 cents on the dollar for the bonds. Even though for awhile it looked like the company would shut its doors for good, Whitman was vindicated when the company emerged from bankruptcy and his bonds were exchanged for stock in the new K-Mart. The shares jumped much higher in the years following the reorganization before being taken over by Sears (Nasdaq:), with a nice profit for Whitman. Thanks to moves like this, the Third Avenue Value Fund has earned a market-beating 14.3% return since Whitman founded the fund in 1990.
Sir John Templeton ran the Templeton Growth Fund from 1954 to 1992, when he sold it. Each $10,000 invested in the fund's Class A shares in 1954 would have grown to $2 million by 1992, with dividends reinvested, or an annualized return of about 14.5%. Templeton pioneered international investing. He was also a serious contrarian investor, buying into countries and companies when, according to his principle, they hit the "point of maximum pessimism." As an example of this strategy, Templeton bought shares of every public European company at the outset of World War II in 1939, including many that were in bankruptcy. He did this with borrowed money to boot. After four years, he sold the shares for a very large profit.
……These are just a few examples only…Contrarian investing Approach has worked more times than it has failed.
PITFALLS/MISTAKES OF CONTRARIAN INVESTING:
- So many times due to misunderstanding the heart of the meaning of contrarian investing as mentioned in the meaning section; many investors mistake simply buying underperforming stocks and sectors and think they are contrarian investors.
- Another pitfall is that you have to be bold, strong hearted and patient if you want to become a contrarian investor and reap the benefits of it too.
- Many people lose their nerves when their portfolio goes down. This is a big draw back of such type of investing mantra. You have to bear looking like a fool for a short period of time to reap huge benefits of being a contrarian investor.
- One another reality is about mutual funds. We have been told about few so called contra-schemes from mutual funds. In reality no mutual fund is truly contrarian. They can not be.
We don’t need to convince you, as far as you are able to convince yourself!
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