Here is a list of the world's most renowned contrarian gurus. They put this investing philosophy to good use and went on to become hugely successful and fabulously rich.
As you know, contrarian investing is a strategy that requires a lot of tenacity to stand against the crowd. And what it takes to be successful at it. Here we list a few of the most well-known contrarian investors, in no particular order.
Sam Zell
Known for his penchant for feasting on distressed assets, Zell is nicknamed the grave dancer. Most of his fortune has been amassed by buying distressed real estate during an economic crisis. In the property bust in the mid-1970s, he was a prominent buyer of distressed property.
It appears that buying cheap and selling high are intrinsic in his dealings. As a youngster, he had to attend Hebrew school in Chicago. When he discovered that Playboy was available near the Chicago railway station, he used to purchase the magazine for 50 cents and resell it in to his friends for $1.50. According to Forbes, Zell cut his first property deal as a University of Michigan junior when he offered to manage apartments in exchange for free digs. By the time he earned his law degree from the same school, Zell was overseeing 5,000 apartments, including those in several buildings he owned himself.
In an interview with CNBC a year ago, this real-estate mogul stated that during the downturn in the early 1990s, his mantra was “stay alive until ‘95”. Last year it was “come clean by ‘13”.
Jim Rogers
He said that the country to move to in 1807 was the UK.
In 1907, it was the US.
In 2007, it was China.
His logic: The 19th century was the century of the UK. The 20th century was the century of the US. The 21st century will be the century of Asia, especially China. Because he wanted his children to grow up knowing Asia and speaking Mandarin, he moved to Singapore in 2007. He is extremely optimistic about Burma and sees exciting opportunity there.
He is also long on agriculture and believes that it is a part of the world economy that will boom. In a recent interview with Fox Business News, he said that agriculture will be one of the most exciting parts of the world economy for the next 20 or 30 years. Investors take note!
Eduardo Elsztain
In 1990, as Argentina was beginning to emerge from a devastating fit of hyperinflation, Elsztain managed to bag a meeting with George Soros. And one single encounter was all he needed. He convinced Soros that the new policies of the Argentine government, intended to deregulate and privatize the economy, were worth a gamble. He left with a cheque of $10 million with which he founded a portfolio management company.
In the New York Times, Eduardo described himself as a contrarian who saw values in properties and stocks driven down by decades of political instability and hyperinflation. When Argentina was left staggering in the wake of Mexico's monetary crisis in 1994 and 1995, he became only more aggressive in his pursuit of both urban and rural properties. That paid off when the Argentine economy took off again.
In a 2011 interview at the New York Stock Exchange, he said that “the best transactions are done when everybody stops and is paralyzed.” He buys “real assets” like farmland, real estate and gold when markets are frozen with fear. In 2011, Bloomberg reported that he was looking for opportunities in crisis-stricken Europe while expanding the business in the US. “These days, the whole world is in some way frozen and the best way to preserve value is to have real assets,” is what he said.
Sir John Templeton
Immortalised as a contrarian investor, he started off as a young lad in dangerous times. He bought around 100 stocks trading below $1 on the NYSE in 1939. This was towards the end of the Great Depression and the start of World War II. From his pick, 34 went bankrupt. On the balance, he made a killing. The other big contrarian investments he is known for are his investments in Japan in the 60's, when it was totally out of favour and no one really thought of investing there. He profited from the tech bubble in 1999 by shorting the sector and predicted that 90% of the new internet companies would go bankrupt within 5 years.
Dr Marc Faber
Famous for his widely read monthly investment newsletter Gloom Boom & Doom, the Hong Kong-based investor has had some pretty accurate predictions to boast of. In 1987, he warned his clients to cash out before Black Monday hit Wall Street. In 1990, he predicted the bursting of the Japanese bubble. In 1993, he predicted the downfall of US gaming stocks and foresaw the Asia Pacific Crisis of 1997-98. In March 2008, he predicted a US stock market bottom (though he inaccurately believed it would last only six months).
His motto: Follow the course opposite to custom and you will almost always be right.
Warren Buffet
He is perhaps the most popular contrarian investor known to have said that “most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” His most famous contrarian move was in 1963 when American Express’ shares were clobbered due to its involvement with Allied Crude Vegetable Oil.
Amex provided credit to the company based upon the inventory of the company’s soybean-based salad oil. The inventory was kept on container ships thought to be full of salad oil. Actually, the containers were filled with water and had only a few feet of salad oil on top. Since the oil floated on top of the water, it appeared to inspectors that these ships were loaded with oil.
This con job, dubbed as the “Salad Oil Scandal”, resulted in Amex losing nearly $58 million wiping out most of its equity base as its shares went into a free fall.
Buffet saw that Amex’s competitive advantage and cash-flow generating capabilities were intact and believed that fears over the eventual liability were overblown. He then went one step further and spent an evening with the cashier at Ross's Steak House in Omaha. He noted that the scandal did not stop people from using their green cards.
He immediately bet 40% of his investment partnership’s capital on Amex. According to Fortune, he bought 5% of the company for $13 million. He later sold his holding for a $20 million profit.
More recently, he has bought dozens of newspapers, a business others have shunned.
George Soros
Soros further developed the contrarian concept into what he calls his theory of 'reflexivity' or the 'human uncertainty principle.' He believes that contrarianism itself can breed second and third generations of contrarianism that is self referential or 'reflexive' that, instead of doubling back and ending up where it started, has the power to change the underlying market fundamentals in ways that make the contrarian assumption the de factor market norm. It is only a matter of time before we get what Soros calls, a 'return to equilibrium' i.e., a crash (eg: 1929, 1987 and 2000). For the professional trader, identifying these inflection points where the market suddenly realizes that its assumptions are worth zero, great fortunes can be made betting the other way. Soros caught the crash in the English pound back in 1992 using this technique and pocketed over $1 billion in one day. In 1997, he made $750 million betting on a decline in the Thai baht.
The founder of Soros Fund Management, he co-founded the Quantum Fund with Jim Rogers and Christoper Ink in 1970, which created the bulk of the Soros fortune.
David Dreman
Founder and chairman of Dreman Value Management, he suffered a big blow in the 2008 crash as he was heavy on banking and financial services stocks. His firm witnessed assets under management fall from $22 billion late 2007 to $4.7 billion by end 2009. He still refused to sell his bank stocks, seeing long-term value in Bank of America, JP Morgan Chase and Wells Fargo. He stuck to his guns, refused to sell at the bottom and was, consequently, well rewarded.
When he felt investors overdiscounted BP’s stock after its oil spill in 2010, he started buying BP that year. That year he also began picking up Ryanair when its shares plunged in response to the volcanic eruption in Iceland, which grounded many of its flights.
With an eye for undervalued stocks, he has earned a reputation of beating the market.
John Neff
Having run the Vanguard Windsor Fund from 1964 to 1995, he generated a CARG of 14.8%. That would have turned an initial $10,000 investment into around $587,000 as compared to only $250,000 for the S&P 500. He described his fund as "relatively prosaic, dull, conservative" (the returns were not), which earned him the title of a “professional’s professional” since other fund managers entrusted their money to him believing it was in safe hands. He believed in ‘good companies, in good industries, at low price to earnings prices’ and said that he “never bought a stock unless, in my view, it was on sale.” By focusing on beaten-down, unloved stocks, he found value in places that most investors overlooked. When the rest of the market caught on, he reaped the rewards.
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.
The article was first published on www.fundsupermart.co.in on March 14, 2013.
