Contrarian Investing | Bear On Business

Archive for the 'Contrarian Investing' Category

Posted by Dan Caruso
June 4, 2009

Contrarian Investing Blues

[Re-print from a long ago bearonbusiness post--but one I think is appropriate for the times...]

So you are sold? You want to be like Warren Buffett–a contrarian investor. The expression “easier said than done” is apropos.

First, simply being contrarian isn’t nearly enough. You also have to be right. The overwhelming percentage of contrarian ideas are not just wrong, they’re downright horrible. Said differently, there is a reason why most people believe otherwise. It is why the style of investing is named based on the word root contrary.

Second, even “right” contrarian views tend to sound wrong. This isn’t a problem for Warren Buffett, but it probably is for you. Why?

Do you feel compelled to run your contrarian ideas by others for validation?

Do you need to convince others to back you financially to pursue your contrarian ideas?

If the answer to either of these is a “yes”, the fact that your idea is viewed by most people as flawed poses a problem. Most other people won’t validate it for you–hence you will lose confidence and become discouraged. Most financial backers will dismiss you, hence raising money will be difficult. Some might even poke fun at you behind your back.

Let’s review. Your ideas have to be right, even if they sound wrong. You have to raise money, even though most money sources think the idea is flawed. You have to trust your convictions, even as others chip away at your confidence.

Do you still want to be a contrarian investor?

So Now What?

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Posted by Dan Caruso
October 13, 2008

Trampling of the Herd

The herd mentality is in full gear. It is feeding off of itself. The constant chatter about gloom and doom leads to spending cuts by companies and consumers. It becomes self fulfilling. As we keep talking about how bad it is going to get, the likelihood of economic disaster increases.

So does that mean we should stop talking about it? Should we resist the temptation to act as everyone else and forgo cost cutting and hunker-down tactics? Should we go on the offensive instead of the defensive? Isn’t it the contrarians who make the money when the herd is trampling?

A while back, I wrote a post titled The Problems with Contrarian Investing. Now is an awful good time to read this post. I will reprint a couple quotes from the post:

The overwhelming percentage of contrarian ideas are not just wrong, they’re downright horrible.

Your ideas have to be right, even if they sound wrong. You have to raise money, even though most money sources think the idea is flawed. You have to trust your convictions, even as others chip away at your confidence.

I ended the post with “Do you still want to be a contrarian investor?” My answer for most people is “don’t go there“. My answer for me–”hell yes!!!“. I just hope I dont get trampled by the herd.