How to Be a Successful Contrarian Investor

Morningstar Investment Management has created a checklist of market characteristics to help identify contrarian opportunities

Daniel Needham 19 March, 2018 | 7:45AM
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breaking from the crowd contrarian investing herd mentality

While each contrarian opportunity is different, they share common features or attributes that aid identification. As Mark Twain reportedly said, history doesn’t repeat itself but it rhymes. So, we’ve created a list of market characteristics to help identify contrarian opportunities. For simplicity we’ll focus on listed equities given the breadth of indicators, however we can also apply these same elements to other asset classes.

Unbalanced Investor Flows

Here we look for a majority of investors, by type, number, and value, to be underweight and a concentration in the remaining investor types. Mutual fund and ETF investors may be a reasonable proxy for the majority, as many institutions, such as pension and sovereign wealth funds, are managed by professional, disciplined investors who can invest countercyclically knowing their funds can maintain a long-term investment horizon, although not always.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Daniel Needham  is Global Chief Investment Officer for Morningstar Investment Management.