My last two posts looked at two strains of value investing. In the first, passive screening, you look for mismatched companies that trade at low prices, while not being burdened with high risk, low growth or low quality growth. In the second, contrarian investing, you focus on companies whose stock prices have gone down the most, on the assumption that markets overreact to news and consequently have to adjust.

While both approaches are backed up by empirical evidence, you still face a problem as. Without a catalyst in the market, causing the stock price to move to what you think is a "fair value", you can be right in your assessment of value, and go bankrupt being right. In activist value investing, you remedy that problem by acting as the agent of change in the companies you target, and thus have a bigger say in your investing destiny.

Nokia came out with an awful earnings report yesterday, with warnings of more bad news to come, and its stock price, not surprisingly, plummeted.

While investors are fleeing the stock and a ratings downgrade looms, is it a contrarian play? What about JP Morgan Chase? Or Research in Motion? Netflix or Green Mountain Coffee, anyone? By focusing on stocks that other investors are abandoning, contrarian value investing is the "anti-lemming" strategy, but it takes a unique personality and a strong stomach to pull off successfully.

The basis for “contrarian” investing:

It’s weird what a few words could do. After some staunch commentary against inflation from Jean-Claude Trichet last week, the Euro surged 4% against the greenback as Eurodollars rose and the market snatched up the currency.

With a rate hike coming that’s a sure thing right?

People seemed to have forgotten that this (chart below) is still going on there.

Moody’s just kicked the Euro bulls in the balls cutting Greek debt three notches to b1 and reminded everyone of the concerns of default. Bond funds around the world have dumped their positions and have been net sellers of Greek, Portuguese, Spanish, and Italian debt already. Its de ja vu all over again. And last time it didn’t fare well for the Euro.

We live in America. We worship the stars. Some say that the only thing we love more than building someone up to stardom, is ripping them from their pedestal and watching them sink into the mud.

Wall Street may exemplify this collective character flaw better than any other other high profile segment of society. Boesky, Milken, Madoff, Fuld...just to name a few. America loves the Wall Street villain, so it's no surprise that the good guys often get little mention.

Earlier this morning, I was reminded of this phenomenon.