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Contrarian Investing Facebook Group
First of all, the site is independent. The good news is that this works to our advantage. Being both rational and independent are critical to successful Contrarian Investing. You will also realize that as a Contrarian Investor we are very skeptical of so called “experts”, “the media”, and the “crowd”. A contrarian needs to questions everything — what they read, hear and see — and to independently think whether the information points to an extreme in opinion. It is a trade off – you will receive comfort and encouragement if you go with the crowd, or you will receive …Read more »
The Forecasting Pitfall of Fundamental Analysis
The Association methodology is ‘contrarian’ because it is quite different than most applications of fundamental analysis. The fundamental analysis technique is generally used by banks, pension funds and the majority of security analysts. There are different styles of fundamental investing which range from momentum and growth investing to value and contrarian investing. In general, a fundamentalist believes that a company’s true value can be determined by analyzing financial indicators such as sales, inventory etc. A fundamentalist believes that a stock price can diverge from the company’s true value and he is convinced that the market must recognize this discrepancy over time. Momentum and growth …Read more »
The low P/E, P/CF, P/D and P/BV Strategy
Findings show that companies in which the market has high expectations, as measured by the above ratios, have consistently performed the worst. The reason is, that a market premium is paid for near term ‘visibility’ on earning prospects. To evaluate the value of a company, forecasts must be made with extreme accuracy into the future. We have already discussed this earlier – this is very difficult to do. Investors and analysts also have confidence and optimism that earnings expectations will be met. Over-confidence about information and forecasts, a reliance on ‘experts’, and over-optimism leads to a deadly combination. This is something …Read more »
Taking advantage of Irrational Behavior Strategy
This strategy is a variation of strategy #1. It looks at relative industry strength and investor sentiment. Indicators Down by 50% off 52 week low Bottom of cycle “Maximum market pessimism” Low relative Price/Earning Low relative Price/Sales Low relative Price/Book Low relative debt-to-equity Interest coverage ratio Cash flow A Contrarian stock Down by 50% off 52 week high. We talked earlier about how the media over focuses daily on individual companies and sectors. One thing that can be done is to listen to the popular press with an ear tuned for these extremes. Phrases such as “disaster”, “doomed” and “dead” …Read more »
Defensive Investing Strategy
There seems to be a lot of talk about stock dividends and other fixed income investments. Dividend paying equities have always been core components of any contrarian’s portfolio. Contrarians by nature are part-active and part-passive. Before making a stock selection, the intelligent investor should keep two key concepts in mind. First they should question, whether they are investing or speculating with regards to a purchase that is made. Secondly they should question, whether a stock selection is good value by fully understanding the concept of margin of safety – the difference in market price versus underlying value. The single most important intellectual development of …Read more »
Warren Buffett Investment Philosophy
Warren Buffett’s philosophy can be summarized into key principles: If you had invested $100 in Berkshire Hathaway when he took over in 1965, you would have about $220,000 today. He views investing as buying a piece of a business, rather than “renting” shares of a company for the short term. Buffett looks at business fundamentals and prefers a business that is: 1. simple and understandable. His purchases are not determined by gloomy economic forecasts, or pessimistic stock market forecasts. He tends to put fairly large sums of money into things that he knows and management that he trusts. He doesn’t invest …Read more »
Contrarian Investing is a Rational Approach to Investing
Contrarian Investing uses an investing methodology that is based on the principle of ‘rationality’. To be a rational investor, there is a need to be realistic about both the upside and downside to any investment. An investor must first recognize the tendency to be both over-optimistic and over-confident in his or her investment decisions. An investor must also recognize the tendency to over-rely on so called ‘experts’ for investment decision making. The Contrarian methodology is rational because it attempts to determine if an individual company, industry or even an entire market is over-priced (irrational exuberance) or under-priced. A contrarian remembers that there were large periods of time …Read more »
Benjamin Graham Investment Philosophy
Benjamin Graham, the father of value investing, was perhaps the most influential investment figure of all time.His work laid the foundation of modern security analysis, and two of his books,The Intelligent Investor (1949) and Security Analysis(1934), are investment classics that remain bestsellers to this day. His Life and work have been inspiration for many of today’s most successful investors, including Warren Buffett, Michael F. Price, and John Neff. A few words of wisdom include the following: (1) Be an Investor, not a speculator “Let us define the speculator as one who seeks to profit from market movements, without primary regard …Read more »
Contrarian Minded Investor
Believe it or not, Contrarians are not alone in their investment beliefs, although at times it feels like it. It is not easy to be a Contrarian minded investor, in today’s fast-paced and get-rich-quick ideological investment environment. One of the most difficult aspects of a contrarian strategy is the strategy’s execution. As investors, we face uncertainty when we invest our capital. It represents our savings and our financial security. An investor suffers the ultimate consequence of an erosion of capital when a bad decision is made. The success of a contrarian investing strategy requires the investor to go against gut reactions, and …Read more »
Contrarian Investing Books to Read
The Five Rules for Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market by Pat Dorsey OVER the years, people from around the world have turned to Morningstar for strong, independent, and reliable advice. The Five Rules for Successful Stock Investing provides the kind of savvy financial guidance only a company like Morningstar could offer. Based on the philosophy that “investing should be fun, but not a game,” this comprehensive guide will put even the most cautious investors back on the right track by helping them pick the right stocks, find great companies, and understand the …Read more »