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Posting #1: Wed Oct 24th, 2007 03:34 |
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Here's an interesting article by Ooi Kok Hwa in the Star
http://biz.thestar.com.my/news/story.asp?file=/2007/10/24/business/19255367&sec=business
Contrarian investing; does it work? It basically means going against the tide, buying when other people are selling and selling when other people are buying. Simply put, buy during crashes and sell during runs.
That is the top-down approach. The bottom top approach would be buying into a business that is suffering a setback (and share price depressed because of this setback). This is NOT to be confused with value investing, as the fundamentals in this case do deteriorate along with the prices. In this strategy the investor is taking a bet in a turnaround story. But if it does turn sour, then he/she stands to lose a bucket load.
Success stories:
MAS, PSCI, DATAPRP, etc etc
Failures:
Those companies that went bust (Gimme some examples folks)
Those type of contrarian investors would be interested in troubled counters like Transmile and Megan (yes Megan, whose to say that it won't turn around? :p)
10 cents anyone?
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Moolah
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Posting #2: Wed Oct 24th, 2007 04:27 |
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Err... I only have my 1 sen to offer.
MAS - yes it is a success story but it was built to be a success. no?
PSCI - one quarter of earnings? Success as a company? Too early. Success as a stock? Yes.
DATAP - success as a stock? LOL! I should know.. i posted those postings. Success as a company? Let's see. It failed once (some counted as twice!)...
- Contrarian investing; does it work? It basically means going against the tide, buying when other people are selling and selling when other people are buying. Simply put, buy during crashes and sell during runs.
Investing is not susah. remember? :p
We attempt to buy shares of good companies at a good price.
That's all to it, in my opinion.
And if u put this into context, then isn't contrarian investing a rather twisted way of putting things?
Buying during crashes... isn't this when one gets GOOD prices?
Yes?
So tell what is contrarian investing?
Is buying just because others are selling, really investing? WHAT are we buying?
And this is where problem I have with such investing. The focus is so biased towards the stock price and not the company itself. Sometimes, folks would blatantly suggest investing in an average company using the cheap price as the primary reason to invest. Thus the whole strategy gets so badly beaten till it becomes an issue of investing in any company at their preceived 'value'. Or shall i say the apparent cheap stock price?
ps... there are so many issues about the article that i think is not so correct. And this is my personal opinion.
Here is one...
- We can choose to be either a contrarian or a follower of the smart money investors. Being a contrarian, you assume that everyone else is stupid, so you will do better by doing the opposite of what the majority of investors are doing.
See hor.. I would NEVER do the oppostie for the sake of being opposite.
It simply does not make sense.
When one wants to do the opposite, there has to be the justifications and the reasonings to do so. Doing it for the sake of being opposite and branding oneself the huge fancy name 'contrarian' is rather silly. Whatever happened to cow sense reasoning? 
And the issue of following smart money investors? LOL! Errr... i rather not start on that!
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Posting #3: Wed Oct 24th, 2007 04:42 |
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Maybe you can give better examples of successful contrarian picks.. Because your other posting on "When business suffers a setback.." is more of a contrarian approach than anything.. Just feel people tend to confuse this..
Anyway to go against the market needs 1 basic element...
Deep deep pockets..
Imagine buying during the 97 crash.. O.o
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Moolah
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Posting #4: Wed Oct 24th, 2007 04:50 |
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random wrote:
Maybe you can give better examples of successful contrarian picks.. Because your other posting on "When business suffers a setback.." is more of a contrarian approach than anything.. Just feel people tend to confuse this..
Anyway to go against the market needs 1 basic element...
Deep deep pockets..
Imagine buying during the 97 crash.. O.o
LOL!
Let me put it simple.
I think contrarian investing is silly.
ok mah?
i dun think it makes sense to invest just for the sake of being opposite makes cow sense.
the other posting... 'When a business suffers a setback...
i am so sorry.... that posting is so badly messed up.
The issue in that posting is so simple. The focus is on what would you do immediately when it happens.
key word is immediately.
Would you hold and hope the business recover or would you sell?
Simple as that.
Now... surely... u do not want this posting to get messed up as that one?
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Moolah
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Posting #5: Wed Oct 24th, 2007 05:02 |
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let me share some old notes with everyone...
Taken from the book, Sun Tzu On Investing by Curtis Montgomery (this book can buy Borders or any other that has that SYT or PYT )
Contrarian Investing
Contratian Investing is a method of moving against the crowd, which relies heavily on a broad understanding of investor pyschology, and when done successfully, you will appear to have seen the future. Sun Tzu advised his generals to devise strategues that deceived their opponents, wore them out, and put them at natural disadvantages. Rational investors will have a natural advantage during time of excessive bull market optimism and bear market pessimism. The key to recognizing such dangers and opportunities is to remain loyal to your Sun Tzu-style assessments, continue screening stocks one at a time and remain focused on determined business value. Your discipline will help you avoid paying too much during bull markets and enhance your confidence to buy bargains during bear markets. You will become a rational contrarian and your peers will think you have seen the future (or lost your mind).
Contratian Investing is one of those terms often misunderstood. A contrarian investor doesn't move against the popular crowd simply for the sake of being different. The true contrarian is a strategic investor whose disciplined approach to stock selection is often at odds with the current trend. If you stick to any particular investing style, be it based on low asset valuations, high earnings growth rates, or high dividend yields, there will be period of times when your style will be in line with the popular thinking, and other times when it will run contrary to the style of the day.
The more long-term focused your strategy, the more likely it will be at odds with popular market trends. Contrasting styles of investing often result from investors' perspectives of the stock market. Chartists, technical analysts and speculators are looking at the short term price movement patterns in the hope they can glean some sense of a trend, able to predict what other investors are thinking. They are trying to understand the emotions of other investors and profit by anticipating their next move. As their guessing game becomes more sophisticatedm and everyone is observing the same charts - the professional guessers must now predict how the other predictors are guessing about how emotions of the majority investors will affect short-term price movements - this quickly becomes a frustrating guess-what-the-guessers-are-guessing game with no likely winners.
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taken from Mary Buffett's New Buffettology (book can buy locally too.  )
CONTRARIAN INVESTMENT STRATEGY VERVSUS SELECTIVE CONTRARIAN INVESTMENT STRATEGY
In a contrarian investment strategy, the investor buys stocks that have recently performed poorly and have fallen out of favor with investors. This strategy is based on the stock research of Eugene Fama and Kenneth French, who figured out that buying companies that have had their stock prices beaten down in the two previous years are likely to give investors an above-average return over the next two years. This strategy focuses on falling stock prices and pays little mind to the underlying economics of the companies. With the traditional contrarian investment strategy investors don’t discriminate between price-competitive-type businesses and companies that possess a durable competitive advantage. So long as the share price has recently fallen, the stock is a candidate for purchase.
A selective contrarian investment strategy – Warren’s approach – dictates that investors buy shares only when a company has a durable competitive advantage, and only when its stock price has been beaten down by a shortsighted market, to the extent that it makes business sense to purchase the entire market. This strategy differs from the traditional contrarian investment strategy in that it targets specific companies that have an identifiable strategy in that it targets specific companies that have an identifiable durable competitive advantage over their competitors and are selling at a price that a private business owner would find attractive.
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Moolah
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Posting #6: Wed Oct 24th, 2007 05:14 |
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Let me share my old notes on these comments
In a contrarian investment strategy, the investor buys stocks that have recently performed poorly and have fallen out of favor with investors. This strategy is based on the stock research of Eugene Fama and Kenneth French, who figured out that buying companies that have had their stock prices beaten down in the two previous years are likely to give investors an above-average return over the next two years.
As you are very well aware that the market is full of risks. And the success of an investor or even a trader depends on how well they acknowledge and manage their risk.
Let me give you some of my views. Not sure you would agree... but here goes...
So firstly i would try to understand the theory. The main assumption in this strategy is that all beated down stocks will one day rise again. Which basically saying is that all stock price movements are cylical. Stocks will have their up and their down days.
So where could one go wrong?
1. How safe is our purchase price? What if the beaten down stock gets more beaten? Or simply put... is it time to buy now?
2. Yes, in general ... most stocks that get beaten down... will rise again... but what if it rebound past my purchase price?
3. What if the stock i chose in the beaten down industry does not rise?
4. What if shit happens? Well, beaten down stock(s) are generally so poor fundamenetally. So isn't there a possibility that it turns into a real disaster? yup... shit really happens! So what if the stock really goes under?
5. How long would it take for this recovery? Say if we buy the stock now.. seeing that the stock price is beaten down... what if this recovery takes much longer than expected? 3 years? Are we willing to wait that long? And even if we are willing to wait that long, what are the chances of our success?
Well these are the questions that i think that require much thinking. In fact, me myself, cannot give you a logical answer to all of these questions because the bottom line is that the answers to the questions is itself unpredictable.
Which is why... in my opinion... what Mary Buffett wrote in her book, The New Buffettology, about her ex-father-in-law is a rather more useful approach.
A selective contrarian investment strategy – Warren’s approach – dictates that investors buy shares only when a company has a durable competitive advantage, and only when its stock price has been beaten down by a shortsighted market, to the extent that it makes business sense to purchase the entire market. This strategy differs from the traditional contrarian investment strategy in that it targets specific companies that have an identifiable strategy in that it targets specific companies that have an identifiable durable competitive advantage over their competitors and are selling at a price that a private business owner would find attractive.
Which basically means that the beaten down stocks must represents companies which has a durable competitive advantage. Companies that are of good quality. This, i believe will help the investor safeguard themselves versus the issues that i had written earlier.
This would be my contrarian approach.
So would I buy just for the sake of being opposite?
No.
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Moolah
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Posting #7: Wed Oct 24th, 2007 05:23 |
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Sorry, I forgot that i actually saved these comments and made a blog posting on it b4!
And I made a real 'life' example back then...
http://whereiszemoola.blogspot.com/2006/01/being-contrary-part-ii.html
let me repost here..
Jan 23rd 2006!
Let's use a real example, thedisc storage manufacturer, Megan Media Holdings.
In a contrarian investment strategy, the investor buys stocks that have recently performed poorly and have fallen out of favor with investors. This strategy is based on the stock research of Eugene Fama and Kenneth French, who figured out that buying companies that have had their stock prices beaten down in the two previous years are likely to give investors an above-average return over the next two years.
Now based on Fama and French theory, we now have a stock which had a 3 month high of around 1.08 and a 12 month high of around 1.40.
Price of Megan Media is now 62 sen. Would one be influenced just because of the low price to adopt a contrarian investing approach on Megan?
Let's see, Megan has performed poorly and fallen out of favor. (Dun have the the previous 2 year highs ler.. )
Soo... would one consider Megan Media as a candidate under this contrarian theory approach?
If so... let's put a marker at 62 sen.. and do a reveiw on it ... maybe a year later?
(  - and as they say... rest is history! )
Now compare the other contrarian approach. The selective contrarian approach.
A selective contrarian investment strategy – Warren’s approach – dictates that investors buy shares only when a company has a durable competitive advantage, and only when its stock price has been beaten down by a shortsighted market, to the extent that it makes business sense to purchase the entire market. This strategy differs from the traditional contrarian investment strategy in that it targets specific companies that have an identifiable strategy in that it targets specific companies that have an identifiable durable competitive advantage over their competitors and are selling at a price that a private business owner would find attractive.
Simple issue. Does Megan Media, currently specialising in DVD discs, have a durable competitve advantage?
My answer as per previous blog posts is a simple NO.
Margins have been poor all along and the balance sheet issues has given a clear indication that there is a very strong likelyhood for Megan Media to struggle.
So there is absolutely no reason why to buy whatsoever if one adopts the selective contrarian investing approach.
Btw..
Commonsense thingy...
A stock that is beaten down. Why? Stock lousy mah.
So does betting it based on this factor make sense?
Or put it this way.. why should the stock, Megan, rebound?
Doesn't it need a really strong set of earnings and clear sign of improvement in its balance sheet issues?
Without this two issues being solved, what will be ze catalyst to attract and seduce buyers to buy the stock?
Unless of course, one believes in the Kaki-Kia (have you heard the hokien KIA joke before? if no, feel free to click on the comments to this blog entry!) theory in stock! (ho ho ho ho!!!)
Oh... another commonsense thingy...
Now.. u see a hugely popular recommended stock in a stock message board gets beaten down teruk-teruk.. and instead of seeing the so-called advicer admitting their own faults in their recommendation(s) (simple issue mah, all of us are merely human and we all do make mistakes. Admitting and owning up to the mistake is the right thingy to do, isn't it?), the advicer twist and turns and stubbornly admits that their stock picking is spot on.
How?
How would one evaluate such a situation?
For example, using our commonsense thingy, doesn't it kinda get rather really silly when one shouts M a buy at 1.40, M still a buy at 1.20, M a buy at 0.80, M still a buy at 0.60 and so on and so on..
Why not admit the mistake and move on?
Why drag on?
Ahh.. perhaps... the advicer knows only the theory but cannot excute the theory of correcting their mistakes when they are wrong (ze theory: a good coach does not necessary equate to a good player and vice-versa! Meaning sometimes people cannot practice what they preach!). So what do they do? They continue to shout out loud-loud a buy for long term, contrarian investing and so on and so on, twisting and turning, all becuase of their own vested interest!
Think about it... The bugger has the stock and the bugger has no heart and simply do not know how to cut-loss and correct their mistakes. So what do they do? They continue digging a bigger hole.
Also think about it.. would the bugger admit the fault in the stock selection when the bugger still have vested interest in it?
Also think about it... if that is all true.. then isn't it logical why the bugger continues to advice a buy on it?
How?
ps... me just mumbling and bumbling hor.... and oh... i am still thinking about it!
:p
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Posting #8: Wed Oct 24th, 2007 06:00 |
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Such a long post... 
Don't mind me horr I'm just wondering if such an approach can work or not...
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Posting #9: Wed Oct 24th, 2007 06:13 |
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One example of a well known contrarian investor; David Dreman
Check out his profile here: http://www.investopedia.com/university/greatest/daviddreman.asp
An a nice article on the contrarian approach
http://www.investopedia.com/articles/stocks/05/troubledstock.asp
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Moolah
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Posting #10: Wed Oct 24th, 2007 06:15 |
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Well... i had just given you a real life example how it had clearly failed.
But can it work?
Well.. i have given u my reasonings why i think such investing is silly..
but...
everyone is different... some could make it work... but that some is certainly not me.
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