LONDON -- It's a hard life being a contrarian investor. Going against the crowd is, by definition, a solitary pursuit. Every time I write an article about a contrarian play, I seem to face a wall of criticism and disdain.
No one seems to believe you. Everyone thinks you are out of your mind. But despite it all, you stick to your guns and go against what everyone is telling you. Perhaps the only thing that sustains you is the belief that you will be proven right in the end.
Taking a bite out of BARC
I was told I was speculating, not investing -- that Barclays was definitely not a share to buy for the future. I was told that I bought Barclays because I had done no analysis.
But I held on grimly to my shares in the face of all the derision. What actually happened? Barclays shares are up 15% as I write this article, compared with a rise in the FTSE All-Share of 3%.
First on my watchlist
Then there was FirstGroup
But my contrarian senses were alerted. For me the company was just too cheap, and so in May I called it a falling knife I might catch. What actually happened? Well, amid all the fear that it might lose a franchise, FirstGroup actually won the West Coast franchise. The transport company's shares are now up 19%, as opposed to a rise in the FTSE All-Share of only 6%.
Could you have waited until the news of FirstGroup's franchise win had been confirmed? Yes, but it would have been too late; by the time the news was announced, the share price had already recovered.
At the end of last year I proposed Barratt Developments
Since then, the firm's shares have bounced back with a vengeance. They are now up a whopping 69%, compared with a rise in the wider U.K. market of 5%.
The knives that bounced
Catching falling knives has been something of a theme in my contrarian investments. My philosophy is that if you can find a share that has been battered by the markets but is still, in your view, a fundamentally strong company with great prospects for the future, then you should buy into it.
But again I was unconvinced, and my contrarian antennae were twitching. After I tipped it in December of last year, the share price recovered dramatically. In reality, the fall had been a case of Mr. Market getting overly depressive about the company's prospects. Admiral has actually continued to grow. Its shares are now up 28%, compared with a rise in the All-Share index of 5%.
In the same article I tipped satellite communications company Inmarsat
Buoyed by a much-improved recent set of results, the shares are now up some 33%, as opposed to a wider market rise of 5%.
With the highs come the lows
My contrarian plays have been by far my best tips, substantially outperforming the FTSE All-Share. Perhaps I am on to something.
If this is all starting to sound a bit too smug and self-satisfied, my growth share tips, by contrast, have not done nearly so well. There have been several notable, and painful, flops (will I ever get over the infamy of SuperGroup?).
Why the difference? Well, I just think that contrarian investing is something that works for me. Would it work for you? That is something only you can decide. Psychologically and emotionally, every person is different.
In the end, I don't mind that people don't believe me. Lately, I have begun to regard all the negativity as just another contrarian indicator. In fact, when people start agreeing with me, that will be the time to worry.
Someone who I think is a master at the art of contrarian investing is Neil Woodford. By investing in out-of-favor shares with great prospects, he has amassed fortunes for those canny enough to have bought into his funds. Read all about it in "8 Income Shares Held By Britain's Super Investor."
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Prabhat owns shares in Barclays and Admiral Group, but not in any of the other companies mentioned. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.