Customer Reviews

Contrarian Investing

5 star:		(9)
4 star:		(1)
3 star:		(1)
2 star:		(2)
1 star:		(0)

 

 

This book should click with value investors. Gallea and Patalon provide practical technical and fundamental strategies to beat the market (with little downside risk) as a contrarian investor. In today's frothy market, the principles gained in this book will help you screen for stocks with major upside potential.

If you've read any other contrarian investing books, I don't think much is new here, but if you haven't read any, then this is a great read. Nicely organized, reasonably easy to read.

If choosing a book from among many recent releases in finance is like picking an entree from a buffet, then this book would be the equivalent of reheated, bland scalloped potatoes: it isn't as if there isn't any worthwhile "nutrition" in the book, but there are probably other tasty morsels that deserve attention. This is lamentable, considering that contrarian investing is probably one of the most rewarding, intellectually stimulating approaches out there. The tax benefits aren't bad either. Still, this book offers little that a careful reader couldn't already find in Richard Band, Ken Fisher, or David Dreman. There are some valuable sections of the book, in particular, the chapter on insider buying. Problems abound, however. The authors mistakenly equate contrarian investing with picking up beaten-down stocks. It is not necessarily true that stocks have to plunge in price before they become a value; they can, for example, stay static in a bull market, as evidenced in the recent purchase of International Dairy Queen by Warren Buffett; or they can double while still remaining a bargain. The authors stick to an arbitrary rule that stocks have to decline at least 50 percent before becoming acceptable for purchase. However, the only evidence offered is an academic study ending in the early 80's. What about the last 15 years or so? What is so special about 50 percent? The book cites many similarly dated studies. In addition, the authors offer other mechanical rules: a certain PE (what if the earnings disappear?), a certain price-sales ratio (what if the price drops, but the sales do as well? Is the stock still a buy?), and book value (again, doesn't book value vary among stocks?). The book almost totally neglects the importance of studying the underlying industries of stocks to determine whether a stock with a low PE may still be a poor choice, or whether a stock with high book value could still be a bargain. The same measuring sticks, generally, are applied to all companies, supermarkets to semi-conductor makers. There are other problems, many of which could or have been pointed out in previous studies on contrarian investing. The book, for instance, refers to Irving Fisher's prediction, made near the crash of '29, that stock prices seem to have a reached a "permanent plateau." Yet Fisher was not really involved the mania associated with a run-away market, but rather was trying to determine a bottom after an already severe market decline (check the charts from 1929--the decline began late in the summer and accelerated in October, just like in 1987). The authors also discuss the so-called "Nifty Fifty" from the early 70's as an example of stocks that should have been avoided due to irrational buying. Yet many of those stocks, if held for 10-15 years (i.e. the long term) after the 1974 collapse, would have definitely rewarded the patient investor (if only I could have bought McDonalds in 1973!). Perhaps the most humorous example in the book is Edwin Lefevre's REMINISCENCES OF A STOCK OPERATOR (supposedly a fictionalized biography of the legendary trader Jesse Livermore). Citing the unnamed trader in Lefevre's book as an example of value-oriented, bottom fishing contrarian investing makes absolutely no sense. The trader in Lefevre's book had disdain for those who would purchase beaten-down stocks or commodities! He bought high and sold higher--at least until he lost it all. Contrarian investing, in principle, requires discipline, rigorous research, and conviction. A helpful guide to help those interested in such an endeavor is still needed, for this book does not adequately do the job.

I think "Contrarian Investing" is an excellent book for today's investors. Given the current environment, which is the 18th year of the bull market (1982-), too little is mentioned about risk management. Many of todays investors look merely at the short term and the possibility of the quick easy gain. This book tries to focus on how to protect your portfolio with some easy rules to follow. These rules may not suit everyone, but they provide some good guidelines and rules of thumb to follow. My experience as a financial planner is that very few people have any kind of plan for their stock let alone broad financial plans. The tools that are given by the authors, if used correctly, should provide the investor with the downside protection that is needed in todays market. After reading the book, I found myself looking at my portfolio and making adjustments to reduce my own risk level. The authors do a good job in discussing the consequences of too much risk. Overall, I thought the book was exceptionally well-written in that Mr. Gallea and Mr. Patalon took a technical topic like investing and made it easy to read and comprehend. Even though I am not one, I think even a novice investor could understand this book and learn a great deal from it.

I found this book to be well written and a great primer on contrarian investing for people who want to manage their own investments. Contrarian strategies are least popular during stock market manias but such periods are also the best time to invest in value instead of hype and hoopla. Overall this is a great book for investors with independant minds and the courage to go against the crowd.

As a professional money manager, I must highly recommend this work. It presents academic arguments that favor "value investing" over the current momentum strategies that are now in vogue. Many of my own investment secrets are contained in this book. For those investors that embrace the value concept, please see other classic novels from E.Lefevre, B.Graham, K.Fisher, and B.Malkiel.

This book describes a method for "betting against the crowd" in the purchase of emotionally (but not rationally) out-of-favor equities. The authors recommend buying stocks that have experienced substantial declines in price, but are capable of passing through several value filters. There is also a good discussion of when to sell and how to manage risk. This method is different from the bargain hunting of value investing because it seeks stocks which are selling at extreme prices due to a temporary stumble in the marketplace.

The authors cite several studies which suggest that such an investment approach can deliver annual returns of 20%, or so, with less volatility than is experienced in average portfolios. They advocate a holding period of at least three years and diversification into 25-35 different issues. Therefore, this method is not suitable for the small investor whose portfolio would include more like three to ten securities.

While lots of studies have indicated that value-based portfolios tend to beat growth-based portfolios, a closer look at the numbers suggests that focus on growth may be better for small investors than search for value.

In one study with which I am familiar, a value portfolio handily beat its growth counterpart. However, of the fifty issues that had an average, annual growth rate of 20% (the long-term average of the broad market with included dividends is 12%), only six were big winners and forty-four had fairly dismal performances. For example (these are not the study numbers) if one of the six had a return of 400%, one had 200%, two had 100%, one had 50%, and one had 25%, for the whole portfolio to return an average of 20%, the remaining forty-four issues would have an average return of only 2.8%! If you are a relatively small investor who cannot afford to adequately diversify, your chances of finding the 12% issues with superior returns would be almost overwhelmed by the 88% of issues yielding 2.8%! Value investing for the small investor is best left to a "dogs of the Dow" approach, or buying a value-based mutual fund. ["Dogs of the Dow" concentrates only upon monster-cap, Dow Jones Industrial Average issues where underpricing does not usually last for long, since all members of this index are market leaders in their respective fields.]

For the investor of means who can adequately diversify, and who is not under the pressure to generate performance-busting returns every calendar quarter, the method presented here is simple, workable, and worth one's attention. The book is well-written; the material is presented in logical, flowing manner; and the authors' case is supported with numerous examples and references. Please note that this method will primarily uncover candidates at major market bottoms. A "Big Charts" stock screener on the date of this posting (closer to a market top than bottom) indicated that there were zero candidates for consideration under this plan at this time.

This book is a contrarian investor's ultimate guide. Written by a portfolio manager and business reporter who know their stuff, this is advice to take to heart. Whether a beginner or highly experienced investor, everyone can learn something valuable from this tremendous resource. It is also an excellent introduction to anyone interested in the concept of contrarian investing.

All aspects are covered including a history of market manias, factors which drive the markets, an individual investor psychological evaluation and a series of formulas in order to calculate what stocks might be ideal contrarian plays.

This book belongs on every investor's bookshelf, especially anyone seeking to make profits from "the crowd's" mistakes. It deserves 100 stars.

Contrarian Investing provides some of the key's tp profiting from other's mistakes. In clear language, enhanced by easy-to-use rules, Gallea and Patalon outline a solid investment discipline -- grounded in hard numbers and backed by years of rsearch. This book taught me how to think like a contriann and how to buy and when to by..."Down-by-Half" can make you rich and happy..

This well-written book contains a complete strategy for making money in the stock market. In a way, it is an algorithm or formula. Criteria for selecting and selling stocks are thoroughly explained. The final chapter "Summary: The Rules of the Contrarian System" is a handbook for a ready refresher course in this methodology.

Sources of good information about stocks are given, and other systems are discussed. The authors show why contrarian investing is one very good, and relatively safe, way to be involved with the market in both generally good and generally bad financial times.