Contrarian value investing is the most common type of value investing. Most of the big names in value investing, from Warren Buffett to Seth Klarman to Marty Whitman, are of the contrarian type. Contrarian value investors take delight in zigging when the market is zagging. These investors like to buy stocks on the cheap that have been left for dead by Mr. Market.
The idea behind contrarian investing is that Mr. Market too often overreacts to news or events. There is academic evidence that supports the validity of contrarian investing. For example, studies have shown that buying a portfolio of stocks that underperformed the prior year outperforms a portfolio of stocks that outperformed the prior.
The key to contrarian investing is patience. Once you find a stock that is undervalued and has been left for dead, don’t expect the stock price to go up just because you bought it. It can take time for Mr. Market to realize the error in his ways.
Another way to think about value investing is through the old value investing cliché that “Good companies don’t always make good investments.” What this means is that great companies that the market loves are often priced as such. As Warren Buffet has said,
“You pay a very high price for a cheery consensus.”
In the end, contrarian value investing is simply buying when the market is selling and patiently waiting for the true value to be recognized. The key word is patience. If you need instant gratification, then value investing is not the place for you
Not sure if your post is in response to a previous, or just a general discussion piece..
Patience, indeed. One of my personal stock selection methods, is to find 'under-valued' quality and wait, add upon dips, and wait for the return to glory :) (last year loading up on F and BAC, etc)
Another, is to fill at my buy range, cash out principle and let free shares run...
Also, some call for profits on rises and adds on dips in a continuous cycle.
The one common factor to success or failure that I have found to be true in all of this is Timing.
Good pick, bad pick, it all becomes relevant to timing.