The low P/E, P/CF, P/D and P/BV Strategy

Contrarian Investing Strategy One

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 »

Benjamin Graham Investment Philosophy

Benjamin Graham

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 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 »

Taking advantage of Irrational Behavior Strategy

Contrarian Investing Strategy Three

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 »