Contrarian Investment Strategies in the Next Generation, Top Reasons You Should Be a Contrarian Investor Right Now
Mon, Apr 21, 2014
Contrarian Investment Strategy For Investors
Contrarian investors have a lot of advantages over most other investors.
One of the most attractive advantages is they can rest easy. After all, the buy assets that already crashed in price. Expectations are often so low for the future prospects of true contrarian investment, there is only one way to go. That’s up.
The other major advantage is results.
Not only is contrarian investing far less risky than what most other investors do, it also performs far better than other investment strategies.
According to research compiled by Dalbar, the average investor earned returns of 2.1% between 1992 and 2011.
The research of how poor the average investor performs was confirmed by a study by JP Morgan. They found between 1993 and 2012 the average investor with an account with them returned 2.3% per year.
These are terrible returns. They’re even more pathetic compared to the S&P 500. These returns came over a period when the S&P 500 (with dividends reinvested) returned 7.75% per year.
That’s a difference of 5.6% per year in annual returns. And it’s the difference between barely making any money and a small fortune over a 20-year period.
Contrarian investors, who use an aggressive deep value investment strategy, do far better.
Take the case of one area we’re finding a lot of dirt cheap contrarian investments – emerging markets.
Emerging markets as a whole have had a relatively tough run over the past few years. Over the last five years the MSCI Emerging Markets Index is up 65%. The S&P 500 rose 145% over the same period.
The divergence in returns between emerging markets investments and the S&P 500 really started about two years ago in early 2012.
Since that time emerging markets are down 10% while the S&P 500 is up 40%.
But here’s the thing. Average investors are making the same mistakes they always make that results in such dreadful returns.
They are selling after a big decline.
Consider this. As emerging markets were slowly dropping throughout 2013, investors pulled out a net $21.7 billion out of emerging markets mutual funds according to data from Barclays.
Then at the start of 2014, when world markets were correcting and emerging markets were leading the way down, the average investors ran for the exits.
In the first six weeks of the MSCI Emerging Markets dropped 10%. Mutual fund investors, meanwhile, took the opportunity to pull out $29.2 billion out of emerging markets funds. That’s more than all of what they pulled out the previous year!
This is why the average investors do so poorly even in an overall bull market.
Contrarian investors aim to do the exact opposite. They also get much better returns with far less risk as well.
The Group of Big Investors in United States.
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