Skip to main content

Investing Styles: Contrarian world of equity investing

IT IS a blend of value investing with aspects of behavioural finance. It tends to be bearish when the market is bullish and vice-versa. Welcome to the world of contrarians — who believe in going against the wind. Although it is never easy, remember what doesn’t kill you makes you stronger.

The-60 year-old (a contrarian investor) is a firm believer that to be successful, you should invest in out of flavour stocks or sectors that are not of prime interest to most investing community. Rather than investing in then popular sector stocks such as realty, banking and others invested a large chunk of money in sugar stocks in January, when the market was at its peak. His intellectual independence with a healthy dash of agnosticism about consensus views reaped dividends. Unlike the other sector stocks, which are bleeding right now, His decision to invest in sugar, stock saw his portfolio’s worth increasing by almost 30-40%.

Here’s an insight into the contrarian world of investing, what you need to know and how you can learn this art to be successful on Dalal Street.

UNCONVENTIONAL WISDOM

For the uninitiated, contrarian investing is based on the premise that a majority of investors (or consensus) are betting in one direction on the market or on a specific stock (or security) but these bets are wrong or unjustified based on the medium to long term outlook. Contrarian approach to investing has a different meaning.

He believes that being contrarian showcases your ability to identify companies that have robust business models which are fundamentally sound, but are grossly undervalued in the stock market. In such companies, the net profit margin is consistent and rising, general trend is upwards, book value is high, and the market price to book value is lower multiple. These stocks, in fact, belong to a sector that is likely to be on a growth trajectory in times to come.

IS IT PROFITABLE?

Contrarian investing, believe analysts, works both for investors who follow markets regularly as well for those who don’t, but only at certain times, and not always. There are many renowned investors such as Warren Buffett and John Marks Templeton who are contrarian investors, but following them may not pay dividends unless you are able to decode market dynamics. This approach requires the same, if not more, research into the stock as any other form of investing. Thus, if you do not follow markets, you should not invest directly, particularly contrarian investing.

The strategy, according to analysts, can be highly profitable, but only at key turning points like the turn of economic cycle or company business cycle. Most other times, contrarian investing may not yield gains and could actually result in losses. It is usually more profitable at the end of bull or bear markets. Also, you should do detailed research/ homework before taking a contrarian bet, because contrarian investing is only successful if you have superior information or research compared to the consensus.

Apart from this aspect of investing, the discipline of entry as well as exit and research while picking up, all go towards making an investment profitable. You shouldn’t forget that these investors tend to have higher profitable investments due to the discipline of research they seek before investment.

DECODING THE MATRIX

There are no strict rules to learn the contrarian way to investing. What you need is experience since this approach requires a strong information base. That’s why there is a famous adage — stock market is a place where people with money make experience, and people with experience make money. You learn the tricks through in-depth research and experience. Strong knowledge of valuation matrix and investment style would only help.

The detail lies in the definition. The simplest contrarian rule would be to invest when markets are low and there is general disinterest towards the stock market — which is a time like now. Apply the principle we apply in gold — we all like to buy gold when markets are down. So why don’t we apply the same principle to stock buying? Good stocks will always be good, they may not double your money in 20 days but they will multiply many fold in 20 years. Think about buying stocks like making an investment into ownership of business. Think about your investment as a seed you have planted to grow a money tree. Don’t treat buying stocks like buying furniture. However, thinks that you should read Benjamin Graham or Warren Buffet’s letter to shareholders of Berkshire Hathaway to understand the basic principles. There are many contrarian investing associations which have these principles. In fact, you can even search the Net to find them.

Popular posts from this blog

Surrender ULPPs

  ICICI Pru LifeTime and ICICI Pru Lifestage are Unit Linked Pension Plans. Such insurance linked retirement plans are neither good investments nor do they offer sufficient insurance cover. As you can see, these have turned out to be bad deals. In the Lifetime plan, the fund value is not even equal to the total premiums that you have paid and in the Lifestage plan your return is just about 6% which is quite low. The mortality charges are as per your age which is why they have increased. Moreover, once these plans matures, you will have to compulsorily opt for annuity (regular income) and the annuity rates are generally modest. Assuming these plans mature in the next one year, it will be wise to surrender the plan now and curb your future commitments.   Before you choose to buy a term plan, you have to consider a few points. You need to insure yourself, only during the time you are working and your family is financially dependent on you. At the age of 59, not all insurance companies w...

ICICI Pru Constant Maturity Gilt dividend

Invest ICICI Prudential Constant Maturity Gilt Fund Online ICICI Prudential Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) ICICI Pru Constant Maturity Gilt-DQ 0.26543239 ICICI Pru Constant Maturity Gilt Direct-DQ 0.27171609 ICICI Pru Q Interval Plan I-D 0.10617296 ICICI Pru Q Interval Plan I Direct-D 0.10703967 ICICI Pru Q Interval Plan I Ret-D 0.10617296             The record date has been fixed as June 13, 2016.   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) ...

NPS Investment Choice for Safe Investors

Invest NPS Online       Whether they invested through SIPs or put in a lump sum amount, risk-averse individ uals have earned the highest returns. These are investors who stayed away from stocks and divided their NPS corpus between G class gilt funds and C class corporate debt funds. On average, gilt funds have given 9.75% annualised returns while corporate debt funds have churned out more than 11% in the past five years. As a result, the average return for ultra-safe investors in the past five years is in double digits. Even in the short term, ultrasafe investors have been the biggest gainers among NPS investors. Will the good times continue? The gilt funds of NPS are holding long-term bonds with an average maturity of over 19 years and a modified duration of about 9 years.These funds have done well because interest rate cuts have pushed down bond yields. But experts say this trend will not stay forever. NPS is a long-term investment and the bonds are predominantly held to matu...

Buy Health Insurance Plan even if you are covered with my Employer

Buy Health Insurance Plan Online Yes, getting a private insurance cover now, which extends beyond your retirement age, is recommended There are a few reasons why buying a health insurance plan may make sense even though you get medical insurance from your employer. Here are the points you need to think about. Firstly, your employer's insurance coverage will only protect you as long as you are employed with the company. The policy will terminate when you quit the job or when you retire. Post retirement is perhaps the phase when one needs it the most but you won't have it then. Moreover, buying a new insurance policy after the age of 50 means that there will be no coverage for pre-existing diseases.   Lastly, health insurance policy you get from your employer may or may not cover your dependants. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver M...

SBI MAGNUM MIDCAP ONLINE

Invest SBI MAGNUM MIDCAP ONLINE   SBI MAGNUM MIDCAP fund didn't fare well in its initial years but, in recent years, has steadily improved its performance under the capable hands of its current fund manager. Although investing predominantly in mid-cap stocks, the average market capitalisation of its portfolio is lower than other category peers.   Although the stock selection approach is mostly bottom-up , the fund manager doesn't shy away from taking bold sector bets , as is reflected in its large exposure to the healthcare sector. She is equally adept at handling performance across market cycles--the fund has captured more of the upside during market upticks and contained the downside during downturns in a better manner than its peers.   Given its superior risk-reward equation, the fund is a worthy pick in its category.     ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing EL...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now