Learning from the GFC

Alex Burke,  Senior Writer,  No More Practice Education

You've likely heard many conversations about the benefits of taking a contrarian approach in investing, but the reality is that there's more to it than just saying the sun is green.

Ed Blain, investment professional at Orbis Investments, recently spoke with us about the virtues of contrarian investing, but clarified that "there are times when most people are right. When they're feeling a lot of fear and a lot of emotion then they'll likely be wrong, but not always.

Learning from the GFC

He highlighted the GFC as an example, noting that at the time, "people were very worried that the banks were going to go bust, so bank shares were selling very cheap."

In that instance, a contrarian perspective might have involved investing in Lehman Brothers stock, but obviously that wouldn't have been a wise decision.

"Contrarianism is where we start," Blain explained. "It's where we look for opportunities, but it's only the start."

Going against the grain

He continued: "You have a huge psychological advantage when you find an area where people are making some kind of psychological human mistake.

"And the strongest one of those that you find in investing is fear. It's been with us as humans for thousands of years, and it'll continue to be with us. When you find an area of the market, a company where there's been some bad news for a few years and people have lost money, and they've lost hope and they get miserable, that's when we start to get interested."

Blain added that the reverse is also true, which is why he loves hype.

The benefits of hype

"We love hype," he said. "If you're a contrarian, then if you've got a thousand journalists telling your competitors to look over there at the exciting new thing, then they're likely to do that, and that means that they were not looking over there at this boring old thing, and it's likely to be cheap.

"Where the trend is, there's likely to be an expensive market. Where a trend isn't, there's likely to be boredom or fear or a feeling that things aren't going to be the same again. And for us that's great."


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