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

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis

Mutual Fund Review: IDFC Premier Equity Fund

  IDFC Premier Equity Fund, which falls under the presumed high risk group of mid- and small-cap schemes, can rely on astute and timely equity picks. These make it less vulnerable to fluctuations compared with others in the category   IDFC Premier Equity Fund is designed to invest in upcoming, but promising businesses available at cheap valuations, and hold on to these businesses until they reap desired returns. The experiment has been successful so far, and IDFC Premier Equity has emerged as one of the top performing mutual fund schemes in the mid- and smallcap category of equity schemes.    While the scheme is an open-ended equity fund, i.e. open for subscriptions throughout the year, it has a unique philosophy to limit fresh inflows. Thus, while an investor can always take the systematic investment plan ( SIP ) route to invest in the scheme throughout the year, inflows through a lumpsum investment have been restricted. Since inception, IDFC Premier Equity has been opened for l

IDFC Premier Equity Fund dividend

  IDFC Mutual Fund   has announced dividend under the dividend option of   IDFC Premier Equity Fund Direct-D . The quantum of dividend shall be   R 4.3464 per unit.   The record date has been fixed as May 06, 2015. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot]
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