Contrarian investing - Allan Gray's approach.

July 2, 2018

Personally, I find a lot of merit in contrarian investing. Behavioural Finance Theory ( https://en.wikipedia.org/wiki/Behavioral_economics  https://www.morningstar.com.au/learn/article/behavioural-finance-why-is-it-so-relevant-in-the-field-of-investing/9041  https://www.forbes.com/sites/jamescahn/2014/02/18/8-more-things-top-investors-avoid/#4d0e880f7c16 ) argues that markets, sectors and individual shares swing between periods of extreme optimism (over-expensive) and extreme pessimism (very cheap) and that this is because of the way human investors behave.  Awareness key features of behavioural finance (eg loss aversion, confirmation bias, endowment effect, anchoring, herding, recentness bias, optimism bias, projection bias etc).  A related feature of investor behaviour is that investors often sell investments just because they are falling in price - unrelated to whether the investment is good value from a longer-term perspective.

In Australia, two contrarian fund managers immediately come to mind - Kerr Neilsen (founder of Platinum Asset Management) and fund manager Allan Gray. One of the key features of contrarian investors is that they looked to "unloved" or out-of-favour sectors and stocks to find find good value. Remember: The best investment returns occur when you can buy a good investment relatively inexpensively.

 

This interview of Simon Mawhinney, Chief Investment Officer of Allan Gray is both interesting and instructive. What Simon talks about are some very important aspects around their approach to Contrarian investing. 

https://www.livewiremarkets.com/wires/feast-and-famine-contrarian-investing-with-allan-gray

https://www.youtube.com/watch?v=GvGhOIHXWfM

 

 

 

 

 

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