Running with the herd is the most popular way to invest because everyone will commend you for heading in the right direction.
Taking a contrarian view, on the other hand, opens you to ridicule from your peers. You may seem out of step, as if you missed getting the proper message or aren't smart enough to grasp the obvious.
"Contrarian investing is basically going against the grain and doing the opposite of what the majority is doing," explained
Stock investing in general has probably been the most significant contrarian investment of the past year because investors have been so wary, Merriman believes. A lot of stock gains were missed as a result.
"The approach to contrarian investing is to look for companies in situations that are misunderstood and out of favor," said
His largest stock holding, the
While the company still isn't making money, usually a bad sign, it owns land worth considerably more than its current stock price, he believes. With the
Investors interested in a contrarian approach either invest in a fund that is truly contrarian, find an advisor with that mindset or begin to research good companies with temporary woes on their own.
"A lot of statistical work has shown that if you bought out-of-favor stocks you would have done significantly better than the market in almost every decade since they started measuring it," said
An indication that Dreman is a true believer in contrarian philosophy: He invests a considerable portion of his own net worth in the fund.
He prefers companies with strong cash flow, accelerating returns on invested capital and smart management--putting money in them when their stock price is temporarily cheap. He invests across all types of industries as well as overseas markets.
"There are two possible problems with contrarian investing," cautioned Merriman. "First, value can underperform growth for a decade and you give up on it or, second, in a depression the contrarian choices are likely the first ones to go under because they already have their own problems."
Contrarian is nonetheless a philosophy espoused by some of the best investors.
"If the fundamentals of a company are pretty good but for some reason or another it is out of favor, it should do well over the long run," said Dreman.
At the beginning of 2009 Dreman was buying unwanted financial stocks such as
"We look for an asymmetrically positive risk/reward in which the downside is relatively limited and the upside disproportionately large, then build a portfolio around those companies," said Decker. "As long as the company isn't about to go bankrupt, the question is how much the market has priced in bad news and whether the price is attractive enough."
Major holdings in Janus Contrarian besides St. Joe include
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