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What is a Conservative Contrarian?
"The trouble with following the herd is
stepping in what it leaves behind."
(excerpted from a Robertson Stephens & Company Contrarian Fund mutual fund ad campaign run in 1995 in the Wall Street Journal)
The concept of buying low and selling high sounds rather straightforward but to accomplish you must to a large degree practice a contrarian style of investing. Given the law of supply and demand, if you are buying low there are more sellers than buyers and conversely if you are selling high there are more buyers than sellers. The contrarian buys when others are selling and sells when others are buying. What does this mean in terms of managing an investment portfolio?
For the short-term investor, "good luck," because you'll need to time the market correctly not once but twice to prosper. You'll have to accurately identify when an investment opportunity is underpriced and then buy, and then sell when it is overpriced. This is not easy to do and despite what you might hear from friends, family, or co-workers at the water cooler, "beating the market," while staying within your genuine risk tolerance level, is an extremely difficult endeavor.
Thankfully for those long-term investors with a well thought out plan, the "conservative contrarian" idea works beautifully. What is it? Once you have decided and determined what a good diversified mix of stocks and bonds is for you, you periodically rebalance this mix back to your optimal level. This forces you to be a contrarian in that what you are selling to rebalance is in relative terms, "high," and likewise what you are buying is in relative terms, "low." Practicing this approach will make you a "conservative contrarian" and will keep your boots clean as you stay well ahead of the herd.
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