The Best Contrarian Value Investing Strategies can really help you improve your stock market returns. But learning the secrets of contrarian value investing isn’t exactly easy. Do you know why?
The reason is…
Being a contrarian value investor means going against the tide. If you embrace the best contrarian value investing strategies you’ll be turning your back on the investment community at large. When CNBC tells you to zig, are you ready to zag instead?
Because the truth is:
It’s exactly this kind of alternative thinking that’s required to be a contrarian value investor. So if you’re interested in contrarian value investing and you think you have what it takes, then I encourage you to keep reading this blog. You’ll learn…
The best contrarian value investing strategy that’s easy to use, as well as actionable tactics to help you find your own contrarian value investing ideas. You’ll also discover the biggest mistake that most contrarian investors make and how to avoid it. Sound good?
The Best Contrarian Value Investing Strategy:
There’s a lot of buzz around contrarian value investing strategies. But in my opinion, the best way to think abut contrarian value investing is the following strategy…
Seek out and use contrarian ideas as a starting point for your value investing analysis and diligence. That means you look for contrarian ideas first, and then screen them using value investing methodology. It’s a two-step process. Does that make sense?
When you use this strategic approach to (1) finding and (2) analyzing contrarian investment ideas you are doing a couple of important things. First of all, you’re finding ideas that are our of favour. This is the essence of being a contrarian. Next, you analyze these investment processes methodically to find a margin of safety, using methods described in books like Security Analysis or The Intelligent Investor. Got it?
The reason to do this in two steps is so that you avoid the biggest mistake most contrarian investors make.
The Biggest Mistake in Contrarian Value Investing:
Contrarian investing is based in large part on emotional arguments. Whether you’re following the group-think or taking the other side of the bet, the essence of being a contrarian investor is disagreeing with the mainstream consensus view.
And that’s where things get dicey. Because when opinions fly, people often get emotional. So do you know the biggest mistake most contrarian value investors make?
The big expensive error most investors make is to be contrarian just for the sake of it!
If you are being contrarian just because everyone thinks something else, you are probably going to lose a lot of money.
The consensus view exists for a reason.
Now that’s not say you can’t get rich with contrarian investing, because lots of people do. But the successful contrarian investors look for instances where the crowd is saying one thing and the FACTS (not your emotions, opinions or arguments) say another.
It’s a big difference. And being “right” is a lot different from being rich. So when you are doing your contrarian investing it’s okay to be emotional and passionate when selecting ideas. But make sure to back up your contrarian investments with very thorough value-investing-based analysis before putting any money to work.
Contrarian investing can be very profitable, or you can go broke. For most value investors looking to be contrarian the breaking point is ego. So use the facts to guide you and make a trading plan to limit your risk.
Now let’s get into some more actionable information so you can start finding contrarian value investing ideas for yourself.
List of Tactics for Finding Contrarian Value Investing Ideas:
Now that you know to be disciplined and logical in your contrarian value investing ideas, you’re ready to start finding some contrarian stock picks. So where do you look?
To find ideas that are contrarian and might also hold up well to value investing methodology, I recommend using some of the following tactics.
- Check the 52 Week Low List: It’s easy to find stocks that are trading at new lows. A lot of financial news websites have lists of companies that are trading at annual lows. You can also use a free online stock screener to help you find stocks at 52 week lows. Just remember, these stocks are trading at lows for a reason. So while they may be out of favour, make sure the facts support your contrarian value investing case. Of course if you want to be a contrarian short-seller you would just reverse this and look for new 52 week highs (or upgrades, in the tactic below).
- Downgrades: One of my favourite ways to find contrarian plays that are beaten down is to look at stocks that have recently been downgraded. Again, while there is probably a reason the stock is being downgraded, contrarian value investors might believe the market is over-reacting. One great place to find downgraded stocks is using the Finviz signal stock screen. It’s easy and quick to find downgraded stock ideas that might make contrarian stock pick ideas.
- News Stories: One final place that’s a great resource for contrarian value investing ideas is the front page of your local or business newspaper. Most media sources these days are filled with negative stories about companies that are doing harm. But in a lot of cases these negative journalists can be a great source of contrarian value investing ideas.
Remember, with all of the tactics above, the key should be to find ideas that the market has over-reacted to. But while searching out contrarian value investing ideas can be filled with emotional opinions, be sure to conduct your research on the basis of logics, fact and reason. Those are truly what it takes to be a successful contrarian value investor.
And By the Way: If you’re looking for more information on value investing strategies I encourage you to download my free eBook below. You’ll get a ton of insight into how I came up with a system to find and analyze value investing ideas. You’ll also get free information each week on the best tools and tips to help you manage your stock market investing and trading decisions a little easier.