There’s a saying, often attributed to Thomas Edison, that goes, “Opportunity is missed by most people because it is dressed in overalls and looks like work.”
Contrarian investing is not a new strategy. It has existed ever since humans started operating markets driven by demand-supply forces with information as the main medium.
Public markets exhibit strong form efficient market hypothesis (EMH) with stock prices following a “random walk,” leaving almost no opportunity for gaining advantage through superior information, as analysts are gathering every bit of available public and non-public information about every market and traded company, and using the powerful combination of human intuition and computers to capture arbitrage opportunities. Contrarian investing is at the top of the Olympus in this endless game of information gathering as it involves either finding a completely new piece of evidence or, more likely, coming to a conclusion that is contrary to the general views in the market. The Big Short shows an excellent real-life example of contrarian investing during the global financial crisis.
Published by Forbes
