Contrarian Investing?

[investor-man]

http://www.fool.com/investing/general/2014/02/14/groupthink.aspx

 

One of the biggest ironies in investing is that while almost everyone thinks they are a contrarian, almost no one actually is. I remember 2007, right before the market peaked. Just about everybody I knew thought they were a value investor, zigging where others zagged. But at investing conferences, you found out that all these guys were basically buying the same stocks. What people thought was a contrarian view was actually rampant groupthink."

 

I like Morgan Hausel, the author of the above article, but I have a problem with his premise.

 

I've often questioned whether or not "contrarian investing" actually exists. It kind of smacks of the fallacy in "stock ABC got cheaper because there are more sellers than buyers".  When there are X number of outstanding shares, they are always certainly owned by someone, and unless the ownership of "out of favor" (aka undervalued) stocks in general become more concentrated, I don't think one can even say a stock is "out of favor" or buying it is "contrarian", because if there are a bunch of other owners, who are you "contrary" to?

 

Anyone know if undervalued stocks tend to have a more concentrated ownership? If they don't then the word "contrarian" ought to be thrown out of the value investing lexicon. I think it has been mixed up with "buy and hold" which is more consistent with the value investing mantra. And if we're talking about a "buy and hold" strategy it doesn't matter how many people jump on board with the idea. BAC is probably one of the most popular ideas of the last couple of years, and who cares how many funds bought it? That's groupthink I can get onboard with!

[rkbabang]

Yes, I put this in the same category as having an "original" idea.  There are a certain number of publicly traded companies who all have a certain number of outstanding shares, all of which are already owned by somebody.  No idea to invest in a public company is original nor contrarian.  You can't even say whether an idea is good or bad without knowing a person's cost basis and how much they eventually sold it for.  When a stock drops from $120 to $80 it wasn't necessarily a bad idea for the person who bought at $12 and plans to hold for another 10 years.

[LC]

IMHO, contrarian or not doesn't matter as long as your investment is yours alone and makes sense to you. I find myself reading less and less of blogs and forums and evaluating investments independently/in solitude. Maybe it's just the cold New York winters :)

[eclecticvalue]

Good topic, it is something I have been thinking of lately. I was reading about the "cash on the sidelines" argument and how there is room for a bull run. The question arises when there is a lot of cash then who are holding the stocks when the majority of sellers sold their positions. Because every time a trade is placed securities and cash switch hands.  I know in crashes the sellers rush to sell the rest of their holdings and the brokers on the floor or nowadays the market makers on the desks provide liquidity by buying securities from sellers even when it is not in their best interests due to regulations in exchanges. I hope somebody can explain this clearly and accurately because I am very interested in knowing about it.