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My Contrarian Style of Investing

By Matt Thalman – Feb 17, 2014 at 6:00PM

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Following the crowd can be dangerous, but attempting to avoid groupthink is difficult to master.

In a great piece titled "Investing's Biggest Irony: Everyone Thinks They're a Contrarian," colleague Morgan Housel observes that while everyone wants to buy when others are selling, and vice-versa, going against the crowd is hard to do. As Morgan notes, even Nobel Prize-winning economist Robert Shiller, who's done some amazing work in the field of behavioral finance and knows how dangerous groupthink can be, succumbed when he was in a position to perhaps stop the devastating bubble that gave us the housing and credit crisis.

Now, I'll never have as much of understanding as Robert Shiller does of how our minds and money collide. So if he can't go against the grain, even when it counts, why should I think I ever can?

As for Morgan, part of his approach to contrarian investing involves putting his portfolio on a type of autopilot. He sets out to invest an increasing amount of money as the market falls by a greater percentage, and then tapers his investment amount for even larger market drops, since they're unlikely to happen as frequently. That's Morgan's attempt at a fail-safe for impending market pullbacks or crashes.

But that's Morgan. I'm not Morgan Housel, and I'm not Robert Shiller. The only thing I can do is to take my own intelligence, emotions, and risk tolerance into consideration. And that's why I don't actively seek to follow what any other investor does. I don't even actively attempt to be a contrarian investor.

My take is that investors are like fingerprints. We're all unique. We all have different investing goals, different plans, different aptitudes, different stomachs for volatility. You name it. That's why I had to find my own blend of investing methods that worked for me, regardless of what anyone else was doing. My strategy borrows a little bit from Peter Lynch, Warren Buffett, David and Tom Gardner, Morgan Housel, my grandfather, and even my friend who just recently bought his first stock. These and countless other experiences have contributed to my own autopilot style of investing.

My strategy is simple: I think long-term, and when I have the cash, I buy stocks selling for cheaper than what I believe they're worth. And I make the purchase immediately after I come to that conclusion, regardless of what's happening around me.

The key for me is to have my strategy written down -- something Morgan often talks about -- so that when my emotions inevitably try to take over, I can maintain control. After all, I can't control what the Dow Jones Industrial Average (^DJI) does in the future. I can't control what happens to the economy, or with inflation, or with interest rates. I can't control what anyone else does in the world. But I can control what I do, so I try to block out all the rest out and not worry about it.

It's not always easy. Just ask Robert Shiller. But my strategy works for me. What works for you? Give it some thought and let us know in the comments.

Matt Thalman and The Motley Fool have no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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