Contrarian investors are like sheep herders. They do not follow what the market says to do or what Wall Street is pushing out there as hot ticket stocks the public should take a look at. Instead, they have their own set of guidelines to follow to determine which companies they want to buy stocks from.
Forbes came up with a set of guidelines that contrarian investors typically follow:
- When the media gets their hands on it, it's already old news: When you are watching the news and see something about the market, unfortunately, it is not fresh news. The market probably already changed by the time you actually hear something "new" going on.
- Go against the grain and buy when others are selling and vice versa: Challenge the norm and remember that there are no psychics in the market. No one holds a crystal ball. Usually people are going off of hunches based on their research and observations, so you are just as right as they are when you decide to buy when other investors are selling.
- The truth is not taken into consideration when your money depends on it: Let's face it: no one wants their bubble to be popped when there's a lot of money at stake, so people tend to remain positive and overlook the truth. This does not mean you have to challenge everything and be a pessimist, but you should take the optimism in the market with a grain of salt.
- Don't take advice from others: Remember, they know just as much as you do. Following tips can lead you into the wrong direction.
- What you see isn't always visible to everyone else: Just because you say it's right doesn't mean everyone else will follow suit, but this is what makes you a contrarian, right? Don't look for everyone around you to follow suit, even if you do consider yourself a herder.
Robert Snow, founder, president and chief investment officer of Snow Capital, is a contrarian investor and has molded his firm to be contrarians as well. The comapny's philosophy stresses that they rely on independent imformation and assure potential and current clients that only stocks with potentially the highest returns are the ones that make it into the portfolio.
Snow has recently purchased 14 new stocks, which leaves him with a grand total of 142 stocks in his portfolio. When taking a look at some of his newest stock purchases, it's evident Snow followed Rule #2 of the contrarian philosophy: buy when others are selling. His purchase of Triumph Group Inc (TGI, Financial) is a great example.
Gurus such as Andreas Halvorsen (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Ken Fisher (Trades, Portfolio), to name a few, sold out of the company. They are among the many others who have. The entire list is actually painted in red, indicating most sold out. Then there is the little spec of green, belonging to Snow, who was one of the two to buy this stock (the other investor is Jim Simmons).
Even though everyone else is selling out, the Peter Lynch chart actually indicates this a perfect time to buy this stock.
When the green line is beneath the blue, it means the stock is a good buy, according to fellow contrarian Peter Lynch and his interactive chart.
Triumph Group Inc (TGI, Financial) is in the aviation business and designs, engineers, manufactures and repairs different parts of an aircraft. The company's subsidiary, Triumph Aerostructures - Vought Aircraft Division, was recently selected by Gulfstream Aerospace Corp to build different parts of the wing structures for the G500/600 business jets. The contract is worth $250 million.
The current price of this stock is $67.67 and is down by 0.13% and with the operational margin expanding, the GuruFocus team sees this as a good investment. But if you are a true contrarian, you won't care what we think, anyway.
