The Case For Contrarian Investing

Going against the crowd can be incredibly hard. But as Michael Brush notes in a recent Brush Up On Stocks piece, it can also be incredibly rewarding.

“Contrarian investing isn’t for everyone,” Brush says. “For long periods of time you will be alone and you will feel wrong. It’s not a style of investing for people who need regular external confirmation of their views. But the rewards are big when your contrarian bets pay off nicely because the crowd finally comes around to your view, and you can sell your stocks to them at a tidy profit.”

Validea’s contrarian-minded Joel Greenblatt-inspired portfolio is up 11.2% annualized since its late 2005 inception vs. 5.1% for the S&P 500. Check out its holdings here.

Recently, Brush made some contrarian bets on both energy and biotech stocks, and they’ve been paying off handsomely. He says you have to have the stomach to stick to a contrarian approach if you’re going to profit from it — something not everyone has. “With contrarian investing, you have to be prepared to be patient and wait it out,” he says. “Since it is tough to predict the future, you don’t really know when a catalyst will come along to help you, or when the crowd will come to its senses and help you out.” Brush also talks about his current thoughts on the energy sector, and whether he thinks it’s still an attractive area of the market for contrarians.