The contrarian approach to investing
ý Fenestra takes a contrarian approach to investing, which CEO William Meyer says is not for the faint-hearted.
One of the greatest supporters of contrarian investing was Sir John Marks Templeton, who advised that “to buy when others are despondently selling, to sell when others are greedily buying, requires the greatest fortitude and pays the greatest reward”.
It’s not easy advice to follow, says Meyer, given that investors can’t blindly carry out market operations diametrically opposed to what the majority is doing.
“There can be good reasons for lightening market exposure or selling a particular share. In fact, it could be financial suicide to buy shares that are plummeting, particularly if those shares are not backed by a strong balance sheet and good management.”
Contrarian investing is the development of an independent and successful methodology that is suited to the character of the individual investor. It’s not simply doing the opposite of what everyone else is doing, because sometimes the crowd is right. Rather, he says, it’s about finetuning your own approach without regard for other opinions.
“Markets are moved by the investor psychology of the moment and don’t reflect true values. In these instances the contrarian investor, having done research according to their individual investing methodology, can scoop up the bargains they require for their portfolio.”
Meyer says contrarians are not speculators, but are in the market for the long haul, even if they may not hold all the shares they buy for long. “This in itself is contrarian as many investors only venture into the market towards the end of a boom.”
“Typically they buy when the professionals are selling and are burnt when the market falls back. They then leave the market alone for many years, sometimes never to return. The problem with this style of investing is that these investors continuously change goals, methods and ambitions.”
In contrast, Templeton believed in being fully invested. He said the best time to invest is when you have money, recommending “buying pessimism” and “selling optimism”.
Templeton’s tips for investing are first, realise that a superior return is more difficult than it appears as the average investor has to beat professional institutional investors. Second, buy value and don’t rely on market trends and economic outlooks.
Third, invest for total maximum real return — in other words, after adjusting for taxes and inflation. Last, be flexible and open-minded about the types of investment under consideration as there are times to buy blue chips and times to sit on cash.