How to be a contrarian?
Hello all,
I was wondering, as the title states, how to be a contrarian. Seems like a simple answer, right? Just pick a major, cult stock like AAPL, for example, and take the opposite position of what the majority says. Then, prove that position with available information. This strategy works but seems to lack any sort of originality.
With that said, what is a more unique and creative way of coming up with your own ideas while also going against the norm? What are some niches within AM/ER that deserve to be examined further, beyond what the majority says? Are there any under-serviced investment strategies (e.g. small-cap growth or value) that could be quite lucrative?
Thanks
There is absolutely ZERO value to being contrarian for the sake of being contrarian. A contrarian view should be born out of objective and independent analysis, you should never start from a point of "oh I'm going to take the opposite here" and then do your work to confirm your preconceived view. Never never never ever do that. A contrarian view is an output of your research process, not an input. You should work through your process, form an opinion, and then compare that opinion to your perception of the consensus opinion. If it is different, you have a contrarian view, but you should then commit time to figuring out WHY the market is wrong and WHY you are correct. What is the consensus missing and why are they missing it? If you cannot figure that piece out, you should assume that you are the one whom is missing something, and go back to and do more work.
Just learn to play devil's advocate with yourself. If everyone is leaning one direction on a stock/there is a prevailing narrative, think about how they could potentially be wrong or events that could derail the narrative. Most of the time it won't result in anything but when it does it usually gives a good R/R idea. One thing I would caution against is being contrarian against valuation. Very rarely works, usually no catalysts to realize the valuation delta, and you don't want to get into the habit of arguing if x stock should be at 40x earnings or 50x.
What do you mean by don’t be contrarian against the valuation? Do you mean don’t try to arbitrarily say the multiple should be x% lower or higher because of intangibles
Just my opinion but if your thesis is purely based on valuation (numbers look good, but company x should be trading at a higher or lower valuation) you are going to have a bad time
Contrarian is 1) seeing different from what the market consensus is seeing AND 2) being correct.
Example:
- consensus: Microsoft and Adobe were dead companies; contrarian: Microsoft and Adobe can shift to subscription model and extra massive lifetime value of their existing customers because of high switch cost of their products
- consensus: Apple is running out of juice on the hardware; contrarian: ginormous and captive install base means they can sell software and service that has high lifetime value and engagement
A contrarian isn't something you can "become". If you consistently find that you have a different view than the markets then you are a contrarian, otherwise you aren't.
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