Message Font: Serif | Sans-Serif
No. of Recommendations: 0
"Contrarian Investing"- by Anthony Gallea and Will Patalon

I just finished this book.They go over what makes up their redition of what contrarian investing is, and what parameters they used to stock pick. The information seems to be backed up by statistics and other author's research (they mention "What Works on Wallstreet" and other books as well). It's an easy read, they break it down so anyone can understand it. There are some striking similarities between Contrarian investing and Value investing (A re-read of B.Graham's "The Intelligent Investor" is next on my list)but I'm not too keen on some of the things that make up their strategy.For instance:

1)the stock in question must be down 50% from the 52 week high, make up no more than 5% of your portfolio (3% is even better), stop-loss should be placed at a 25% below your purchase price, stock should be held until it gains 50% OR 2-3 years-whatever comes first,no industry or sector is to make up more than 20% of your port.

There are also some fundamental criteria, P/E (Price to Earnings) less than 12, P/FCF (price to free cash flow)less than 10,P/B(Price to Book)less than one P/s (Price to sales)less than one.

They use sales because managers can use creative book keeping for other ratios,but sales are sales. As it is, this method of investing, given that no stock can make up more than 5% of your port, pretty much tells you that you need 20 to 35 stocks to make up your portfolio.Okay, so mechanical investing with the stop losses may limit your losses to 1.5% of your port should a stock price trigger a sale, but this many stocks in one portfolio, using one investment style seems a bit much to me.

It may be a good way to invest, but I'm guessing the majority of investors probably wouldn't give 2-3yr holding periods a chance let alone 20-35 stocks in one portfolio using one strategy. They mention re-evaluating your positions maybe once a quarter.Besides all of this, you'd have to put a pretty big stake in this portfolio to make it worth while.It would have been interesting to actually see concrete examples of such a portfolio at work. While the book actually talks about specific positions taken to give examples of "what we did in this situation", the don't give a full 2-3 yr portfolio tracking to show exactly what happened with every stock.


Quote #17 "Warren Buffett, the greatest investor of them all, looks for the same sorts of opportunities I do, except that when he finds them,he buys the whole company." -Peter Lynch
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.