Friday, September 18, 2009

Contrarian Investing

Some of the most successful investors of all time have been contrarian investors. The list of most famous contrarian investors would include the likes of Warren Buffet, Jim Rogers and John Templeton.

What exactly is contrarianism? What it means is developing your OWN approach to investing and working toward LONG-TERM investing goals. I'm sure the late John Templeton would be appalled by today's emphasis on the short-term such as day trading or Wall Street's high frequency trading.

Contrarians are aware that short-term movements in the markets are caused almost entirely by 'investor psychology' - that is what the majority of investors happens to be thinking at the moment. We see it all the time on Wall Street - everyone in the "herd" is invested in the same things. Another applicable term may be 'momentum investing' - chasing what is 'hot' at the moment.

A contrarian investor NEVER entrusts their money to others for precisely this reason. If they do, their money will most likely go into 'popular' investments and when the 'popularity' fades, so will the asset value of their portfolio.

Small investors who entrusted their money to others experienced this last fall until the spring of this year.

My favorite contrarian investor has to be John Templeton of whom I wrote about recently in my article titled "Investing Lessons from John Templeton".

As I discussed in the article, Sir John Templeton pioneered the idea of global investing in this country. He invested the monies in his Templeton Growth Fund into foreign markets when it was considered "nuts" to do so.

The fund grew at about a 16% per year rate. So if someone invested $10,000 into the fund when it was launched in 1954, by 1999 that $10,000 would have been worth an incredible $5.5 million!

Templeton's focus was always on the fundamentals of the company he was investing into. He could care less about currency movements, or what the charts 'said'.

John Templeton's investment maxims were very simple and they were just basic common sense. Here are some maxims that he published:

1) NEVER follow the crowd.

2) Avoid the popular.

3) Search worldwide.

4) Buy during times of pessimism.

5) Hunt for value and bargains.

6) Keep an open mind.

7) Learn from your mistakes.

8) No one knows everything.

9) Everything changes.

10)Invest for real returns.

Just by following some of these investment maxims from Sir John Templeton should help improve your long-term investment performance.

1 comment:

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