One of a series of
short sharp turns, angles or alterations in a course.
- The
Merriam-Webster Dictionary
In my view, to succeed in
the investment business an individual must possess a sense
of cynicism but more importantly, a steadfast contrarian
attitude.
It seems to me that the
most profitable investment ideas are those that have yet to
be discovered by the mainstream of investment analysts. It
is, at this time, when a sagacious portfolio manager, after
uncovering a diamond in the rough investment can accumulate
a significant holding without moving the security's market
price. In effect, the successful manager must zig while
other investors are zagging to popular investment trends and
vice versa.
But in the investment
business to zig while others zag is an extremely difficult
discipline. Investors, like wolves, generally like to travel
in packs. These packs tend to hold unanimous opinions.
Unanimous investment opinions, however, come with a price.
That is to say with investment unanimity, prices tend to
have already incorporated the bulk of a stock's projected
capital appreciation. With all investors zigging, I believe
there are many profitable opportunities for astute investors
who may wish to zag and move against an overly popular
investment consensus.
It is interesting to note
that if one studies the past winners of sporting events,
business transactions or even military engagements, the
victor in most instances employed "outside of the
box" strategies. Success was often achieved with
original thought and taking the risk of change. From my
perspective, I have increasingly noted the benefits of going
against the pack. In fact, employing extraordinary or
unorthodox thinking can often become extremely productive in
uncovering exceptional opportunities. Relating all this to
investments, the successful contrarian analyst must possess
steadfast disciplines, courage of his convictions and the
curiosity and stamina to explore and dig where no other
investor has tread.
At a time when stock
selectivity is all-important to attain superior investment
performance I believe that "zigging" while the
majority of other investors are "zagging" can be
extremely rewarding in an otherwise very difficult market
environment.
Irwin A. Michael, CFA
