Here at Short Side of Long blog, contrarian analysis is the core of executing investments, while fundamental research is the selective process between asset classes. And while I understand that being a contrarian doesn’t always work, over the long term it is definitely one of the better ways to invest. This is also confirmed by the recent study conducted by Russell Jame of the University of Kentucky. Bloomberg writes:
“The best hedge fund managers tend to find profits in short-term, contrarian bets.
That’s the finding of a study published this year by Russell Jame of the University of Kentucky and set to be presented next month at the American Economic Association’s annual meeting in Philadelphia.
Star hedge funds secure profits over short periods, with more than 25 percent of an annual outperformance occurring within a month after a trade. The profits are also often made when managers have bet against the prevailing market view.“
Personally, I do not trade as frequently as some of these market experts, but I do find that the contrarian approach works just as well over the long term. Just remember that in this game, patience is a virtue. In other words, buy something and wait five years (instead of just five weeks haha!).