According to the Oxford English dictionary, a contrarian is a person who opposes or rejects popular opinion, especially in stock exchange dealing. We would add to this, someone that is also principled.
A Contrarian is willing to be different and doesn’t worry even when they are the only person thinking their way. As contrarians, we are willing to go against the herd, buying out-of-favour investments, often cheaply, then selling them at higher prices when they become fashionable.
As Mark Twain once said, “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” This is very true in investments, but due to peer pressure, human nature and egos, most investment managers find contrarian investing hard to sustain.
Alan Miller is our Captain Contrarian and uses his knowledge and insight gained over 28 years. In addition he adheres to the advice of two investment superheroes, Warren Buffet and Donald Rumsfeld.
Mr Buffet advises investors “to be fearful when others are greedy and greedy when others are fearful”, i.e. buy when everyone else is desperate to sell, and don’t fall for the hype of the herd.
Mr Rumsfeld said that “There are known unknowns… But there are also unknown unknowns. There are things we don’t know we don’t know”, i.e. buy the things you can interrogate, know and understand rather than speculate on the things you don’t know and can’t predict.
Being contrarian also mean questioning research and reports from highly paid analysts and big research houses. Opinions are like belly buttons, everyone has one but if you spend too much time naval gazing you end up with a very warped view.
At SCM Direct we focus on making the best decisions we can, and defending our clients’ hard earned money whilst aiming to grow it with the lowest possible costs and risk.
Fundamentals Not Fashion
We understand that many people are cautious and nervous about investing and in many ways they are justified. The financial crisis, banking bailouts, scandals and mis-selling have significantly damaged the sector. Even in uncertain times, we believe sitting in cash may be a road to ruin.
To make the most of the investment opportunities we believe still exist, we invest in a disciplined, diversified and cost-efficient manner, concentrating on fundamental value so our clients actually benefit from the “fearful”.
The old fashioned fundamentals we use to evaluate an investment opportunity and see how it measures up before deciding to invest include price/earnings ratio, price/book value ratio, price/cash flow ratio, dividend yield, price/earnings growth, earnings growth.
Once we make an asset allocation decision, we apply fundamental analysis to the ETFs in that particular asset class / sector, look under the bonnet of the ETFs and choose the best one overall.
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