If you can’t be lucky in investing, it will pay to be a contrarian. Contrarian investing isn’t the same thing as value investing, but it’s a close cousin. Value stocks frequently become values because they are out of favor—and thus inexpensive. Using history as a guide, if an investor routinely bought out-of-favor stocks and sold the popular ones over the last 50 years, he or she would have averaged a higher rate of return than simply owning an index like the S&P 500. The investor would certainly not have been right all the time, but his or her investment batting average would have been high enough to outperform the S&P 500. This result primarily derives from investors’ well-known and well-researched tendencies to become overly enthusiastic regarding popular stocks and overly pessimistic about unpopular ones.
Dec 2019