Contrarian
Contrarian strategies are strategies that go against the crowd (they do the opposite of whats popular at the time)
Contrarian Strategies Common With Resource Investing
- Wide commodity price swings and cycles contribute to this
- The world requires commodities - companies and industries are unlikely to disappear
- If prices are low and companies are hurting, prices will eventually right themselves
- The companies can't all go bankrupt or the world still stop functioning
Contrarian strategies are easy in hindsight, but hard to implement
- Physiologically humans are include to follow the herd (it's in our DNA)
- Going against the herd makes us feel uncomfortable (even if its logical)
- It's hard to be a contrarian in practice when things are going the opposite direction
- Often the herd makes contrarians feel like they will miss out or get crushed
Contrarians Look For Companies & Industries That:
- the herd finds boring or fallen out of favor
- the heard hates (better than boring)
- have been forgotten
- that are needed by the world/economy and likely won't disappear (natural resources)
Contrarians Looks at Leading Indicators to help understand when a market turns
- When an industry is out of favor or depressed, generally only the strongest companies & management teams survive
- Investing at this time ensures you'll invest in a good company / management team (there are few/no bad ones)
- On the other hand, investing when an industry is hot and popular gives you less favorable odds of investing in a good firm or team
- When industries are hot, lots of companies start operating in the industry
- With lots of peopel operating and a strong industry tailwing, it's hard to tell who are the best companies nad managemnet teams
- Your odds of picking a good one are lower than when an industry is depresses and only the strong remain
Contrarian Jokes
- Everyone tries to be a contrarian when it's popular