Contrarian vs Value Investing

Philip Fisher used to say that be extra careful when buying into companies and industries that are the current darlings of the financial community.

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This strategy is known as contrarian investing.

Contrarian investing is simple but not easy. Why it's not easy? Because humans are prone to herd. Our brain is wired to make us social animals, but that's not good for an investor.

Contrarian investing means holding a viewpoint on the market that is out of favor. And then doing the necessary study to determine if there's an investment opportunity. A contrarian investor must be willing to spend a lot of time evaluating market conditions to build its case.

"It's not always easy to do what's not popular, but that's where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized. I've never bought a stock unless, in my view, it was on sale. Buy on the cannons and sell on the trumpets."
- John Nefftonbury & Mark

If the prevailing market sentiment is that the pace of economic growth will accelerate, for instance, a contrarian could decide to make investments predicated on the idea that the economy won't accelerate, and that stock prices will decline. It may take an investor months to fully develop a contrarian viewpoint, and even more time for their strategy to pay off. Contrarian investors must be comfortable with the risks and potential losses that come with waiting. By making investment decisions that align with a contrarian view and doing so earlycontrarians aim to make trades before the consensus view shifts in their favor.

A contrarian investor looks for opportunities where the popularity of an investment choice in the broader market has led people to drastically misprice certain securities. That means when everyone else is buying a certain stock, the contrarian is selling. When everyone's selling out of a certain industry, the contrarian is picking up shares on the cheap.