Posted by Icon8888 > 2019-01-19 21:02 | Report Abuse

Contrarian doesn't mean that you go against the crowd for the sake of going against the crowd. It means that you think independently to try to figure out whether the crowd is acting rationally.

Windsor's investment in Citigroup is a good example :

Most investors feared for Citibank in May 1991. Amid real estate problems galore, and on the heels of cleaning up disastrous loans to developing countries, Citi's prospects were bleak. Share price collapsed.

At Windsor, after weighing Citi's situation carefully, we decided this was a good time to buy.

Citicorp exercised Windsor's contrarian streak from the start. Citi's important sizzle in 1987 was a steep discount to prevailing price-earnings ratios. (Icon8888 notes : Buying at low PER is a major feature of Contrarian Investing).

We believed that Citicorp had an extraordinary consumer position that would eventually win recognition in the marketplace. We noted that the problems primarily afflicted the bank's commercial real estate business. Earnings on the consumer side were posting hefty gains. The dominant credit card business was outstanding, and a firm foothold in the developing world was starting to contribute to the bottom line. Figuring that real estate would rise again, as it always does, we saw the potential for making a bucket for shareholders.

After Windsor bought Citigroup, the stock continued to decline due to earning disappointment. Windsor averaged down.

Windsor endured the slings and arrows, and the outcome eventually brought sweet vindication and very handsome returns. By early 1992, earnings and stock price were visibly on the road back. Windsor's stake was profitable before calendar year-end, and Windsor's neck-out stance eventually garnered returns well worth the wait.

Windsor's roller coaster experience with Citi underscored a crucial point: investment success does not require glamour stocks or bull markets. Judgment and fortitude were the prerequisites. Judgment singles out opportunities, fortitude enables you to live with them while the rest of the world scrambles in another direction. Citi exemplified this investment challenge. To Windsor, ugly stocks were often beautiful.

Posted by Icon8888 > 2019-01-19 21:11 | Report Abuse

The following is what Seth Klarman said about contrarian investing in his book "Margin of Safety" :

Investors may find it difficult to act as contrarians for they can never be certain whether or when they will be proven correct. Since they are acting against the crowd, contrarians are almost always initially wrong and likely for a time to suffer paper losses. By contrast, members of the herd are nearly always right for a period. Not only are contrarians initially wrong, they may be wrong more often and for longer periods than others because market trends can continue long past any limits warranted by underlying value.

Icon8888 notes : It is impossible to buy at the bottom. Based on my experience, 9 out of 10 times, stock price will continue to drop after you take position. However, if your judgment is correct, it will ultimately rebound. (of course, the opposite is true. If you are wrong, you will go to Holland)

Posted by Icon8888 > 2019-01-19 21:19 | Report Abuse

The followings are the principal elements of John Neff's contrarian investing strategy :-

(1) Low price-earnings (p/e) ratio.

(2) Fundamental growth in excess of 7 percent.

(3) Yield protection.

(4) Superior relationship of total return to p/e paid.

(5) No cyclical exposure without compensating p/e multiple.

(6) Solid companies in growing fields.

(7) Strong fundamental case.

Please refer below for further details.

Posted by qqq3 > 2019-01-19 21:21 | Report Abuse

Just to be sure, we are talking about Citibank, a world wide recognised brand....not talking about the personal piggy bank of a Thong KK. - Insas.

Posted by Icon8888 > 2019-01-19 21:23 | Report Abuse

to be continued tomorrow

Posted by qqq3 > 2019-01-19 21:24 | Report Abuse

Financial crisis buy the brand names la.......unless got Lehman Brothers then no cure.

Posted by cheoky > 2019-01-19 21:25 | Report Abuse

Thx for sharing.. icon sifu what is the current ugly stocks in bursa ar?

Posted by lizi > 2019-01-19 21:30 | Report Abuse

(Icon8888 notes : Buying at low PER is a major feature of Contrarian Investing).

Is above low PE a temporary low PE due to unexpected slump/shock?
Or is above low PE a consistent low PE over a long period of time regardless of external market condition?

I believe these are keys follow up question to low PE. Even better of contrarian investing is when PE get negative..

Posted by Icon8888 > 2019-01-19 21:33 | Report Abuse

How about MKH ?

It was senselessly sold down after reporting a recent bad quarter. But closer analysis showed that RM20 mil was due to exceptional items.

On TOP of that, the group has RM1 billion unbilled property sales (last year property revenue was RM700 mil only). The group has 8 projects TOD related. 3 were launched while 5 remaining. Most projects are medium to Low cost properties.

As for plantation, last quarter CPO price RM1,870 while current is RM2,200 while MPOB forecast RM2,500 for 2019.

The stock at current RM1.25 is down from RM5 in 2014. Of course there are reasons for that, but still, it is closed to all time Low.

Basically, buying out of favour stocks that has potential to turn around in not too distant future is contrarian investing.

Posted by Icon8888 > 2019-01-19 21:40 | Report Abuse

You question is valid. A contrarian strategy must have potential of re rating. Don’t buy Low PE for the sake of Low PE. The best is if the stock will experience PE multiple expansion in the future as more positive details made available to public. John Neff mentioned this in the book.

Anyway, it is a big topic. I am afraid I can’t respond just like that. Please be patient, I will furnish more info (as I myself discover more !). Thanks


lizi
1809 posts
Posted by lizi > Jan 19, 2019 09:30 PM | Report Abuse

(Icon8888 notes : Buying at low PER is a major feature of Contrarian Investing).

Is above low PE a temporary low PE due to unexpected slump/shock?
Or is above low PE a consistent low PE over a long period of time regardless of external market condition?

I believe these are keys follow up question to low PE. Even better of contrarian investing is when PE get negative..

Posted by qqq3 > 2019-01-19 21:47 | Report Abuse

LTAT corruption scandal....go buy Affin and BIMB......u can't go more contrarian than that ......

Posted by Icon8888 > 2019-01-19 21:50 | Report Abuse

Yes, the herd will think like that. A contrarian will sit down, pull out a paper and write down the risks, the facts, and the imaginary parts. Then he makes a judgement. What are the possibility ? What are the mitigating factors ? etc



qqq3
7331 posts
Posted by qqq3 > Jan 19, 2019 09:47 PM | Report Abuse

LTAT corruption scandal....go buy Affin and BIMB......u can't go more contrarian than that ......

Posted by cheoky > 2019-01-19 21:51 | Report Abuse

For once same boat with qqq

Posted by Icon8888 > 2019-01-19 21:54 | Report Abuse

I will keep my opinion to myself as I not interested to engage in prolong debate about particular stocks. I have seen what happened at QL

Posted by qqq3 > 2019-01-19 21:55 | Report Abuse

If Felda can go back to $ 1.50, it is a good contrarian buy. Too bad I got no opinion on CPO outlook.

Posted by Icon8888 > 2019-01-19 21:57 | Report Abuse

Felda I bought at 70 plus but chicken out an sold at small loss

Nevermind

Posted by Icon8888 > 2019-01-19 22:03 | Report Abuse

X

Cheoky, another contrarian case is of course Bumi armada

I bought at 16sen (qqq3 my witness)

Market cap that time RM700 mil, net profit per quarter RM70 mil. Of course there is the loan restructuring (that is what the herd knows !!!).

So, a contrarian will sit down and zoom in at the loan restructuring and ask himself : what is actually happening ? Will there really be a default ? Is that what the Bankers want ? Or are they likely to be lenient so as not to box themselves into a corner ?

That is what I call contrarian : not to think opposite for the sake of opposite, but to think independently and rationally, coupled with potential Low PE

Posted by qqq3 > 2019-01-19 22:11 | Report Abuse

Armada...some times it is not what price, but what % of the portfolio.

Posted by Connie555 > 2019-01-19 22:43 | Report Abuse

My own personal experience, jz wanted to know how you all, included icon8888 deal with your inner self (in terms of physcological/mentally stressing)

Lets say you bought a stock of which u have a high confidence over your own judgement towards the stock. Share price then futher tank maybe 20 - 30% and yet you see ntg wrong. Logical move should be average down, however after some period share price tank further, how are you going to deal with the situation? (both mentally & action towards your share etc buy,hold or sell) Afterall, i think everyone of us will have some emotion cling towards our losses as the figure becoming bigger and bigger.

Posted by soojinhou > 2019-01-19 22:44 | Report Abuse

Take a deep breathe, and buy more

Posted by Icon8888 > 2019-01-20 03:58 | Report Abuse

I will write an article on this

Posted by Connie555 > Jan 19, 2019 10:43 PM | Report Abuse

My own personal experience, jz wanted to know how you all, included icon8888 deal with your inner self (in terms of physcological/mentally stressing)

Lets say you bought a stock of which u have a high confidence over your own judgement towards the stock. Share price then futher tank maybe 20 - 30% and yet you see ntg wrong. Logical move should be average down, however after some period share price tank further, how are you going to deal with the situation? (both mentally & action towards your share etc buy,hold or sell) Afterall, i think everyone of us will have some emotion cling towards our losses as the figure becoming bigger and bigger.

Posted by Icon8888 > 2019-01-20 09:33 | Report Abuse

(Low PE Ratio)

(a) Low p/e ratio stocks populate bargain basements because their underlying earnings and growth prospects don't excite most investors. As a low p/e investor, you have to distinguish misunderstood and overlooked stocks selling at bargain prices from many more stocks with lackluster prospects. The distinction is not readily visible.

(b) Most investors are great at extending straight lines. They have every confidence that a hot stock or industry will continue on the same trajectory. Windsor took the opposite approach. Its strength always depended on coaxing overlooked, out-of-favor stocks to move up from undervalued to fairly valued.

(c)The stocks Windsor bought usually had had the stuffing beaten out of them. Their p/e ratios were 40 to 60 percent below the market.

(Icon8888 comment : stocks trading at half the PE of the market are good candidates for contrarians)

(d) Absent stunning growth rates, low p/e stocks can capture the wonders of p/e expansion with less risk than growth stocks. An increase in the p/e ratio, coupled with improved earnings, turbocharges the appreciation potential. Instead of a price gain merely commensurate with earnings, the stock price can appreciate 50 to 100 percent.

(Icon8888 comment : buy low PE stocks such that you can benefit from PE expansion when sentiment improves (apart from earning improvement). PE expansion combined with earning improvement can deliver substantial gain of lets say, 50% to 100%)

(e) the prospects for increasing an out-of-favor company's p/e ratio from, say, 8 to 11 times, always proved more promising than comparable percentage advances by companies that started with lofty p/e ratios. For a growth stock with a starting p/e ratio of 40 times earnings, comparable expansion would have to propel the p/e to almost 55 times earnings-to say nothing of sustaining it.

(Icon8888 comment : when your stock's PE is already very high, you miss the benefit of further PE expansion. Think QL and Nestle. Unless further earning growth, these stock have more or less plateaued)

Posted by lizi > 2019-01-20 09:47 | Report Abuse

For me capital preservation is the most important, i will cut loss no matter how confident...i gave you one example supermax, icon's recommend stock, i cut loss twice on supermax (rm2, and rm1.8 if i remember correctly)...but on third attempt it all goes well, when i see the trend reverse, i added more and let it run....overall, i had a significant win on supermax, the previous 2 cut loss is nothing compare to my third attempt's win....

did i know my third attempt will be successfully? of course no...if i did not cut loss and supermax did not turn out to be successful, then i will lose big....cut loss doesn't mean give up, cut loss doesn't mean we abandon our believe on the stock...

it is just how i manage risk, taking care of my own risk appetite...

Now did i always cut loss or apply strategy above? mostly but there is an exception....the exeption is very very rare but happen....the exception is when the stock is fulfilling net net value, have good cash flow and dividend.....then i won't cut loss and fight on....one real example of mine is FLBHD....collected at rm1.3 all the way down to rm1...

Posted by Aseng > 2019-01-20 09:56 | Report Abuse

Life is really simple, but we insist on making it complicated - unknown

Posted by Icon8888 > 2019-01-20 10:02 | Report Abuse

cut loss is a very tricky concept. I don't really have a firm view (pending further analysis and research). We need to have more debate on this. You have just started the ball rolling. Thanks



Posted by lizi > Jan 20, 2019 09:47 AM | Report Abuse

For me capital preservation is the most important, i will cut loss no matter how confident...i gave you one example supermax, icon's recommend stock, i cut loss twice on supermax (rm2, and rm1.8 if i remember correctly)...but on third attempt it all goes well, when i see the trend reverse, i added more and let it run....overall, i had a significant win on supermax, the previous 2 cut loss is nothing compare to my third attempt's win....

did i know my third attempt will be successfully? of course no...if i did not cut loss and supermax did not turn out to be successful, then i will lose big....cut loss doesn't mean give up, cut loss doesn't mean we abandon our believe on the stock...

it is just how i manage risk, taking care of my own risk appetite...

Now did i always cut loss or apply strategy above? mostly but there is an exception....the exeption is very very rare but happen....the exception is when the stock is fulfilling net net value, have good cash flow and dividend.....then i won't cut loss and fight on....one real example of mine is FLBHD....collected at rm1.3 all the way down to rm1...

Posted by Aseng > 2019-01-20 10:07 | Report Abuse

At the end of the day, we learnt Albert Einstein was actually teaching us that "everything should be made as simple as possible, but not simpler"
Put it simply,
Stick to the thing that you can do it well. You won't regret even if you fail.

Posted by Aseng > 2019-01-20 10:29 | Report Abuse

My sifu told me :

No theory is better than the theory that you can understand

Posted by Icon8888 > 2019-01-20 10:39 | Report Abuse

(Fundamental growth in excess of 7 percent) 

(a) Low p/e companies growing faster than 7 percent a year tipped Windsor off to underappreciated signs of life, particularly if accompanied by an attention-getting dividend. 

(Icon8888 comment : when a stock is trading at low PE and yet delivering decent growth, it is a VERY COMPELLING BUY. But of course, you don't need to stick strictly to 7% (in my opinion). It can be any figure you are comfortable with)

(b) historical earning deals with the past, prospective earning is about the future. In the absence of crystal ball, earning estimate boil down to educated guesstimates. One brand of earning is not inherently superior to another. Each has its use, and savvy investors use them all.

(Icon8888 comment : Unlike Seth Klarman (Margin of Safety), John Neff is not averse to taking position based on prospective earning. For him, both historical and prospective earning are useful)

(c) Windsor preferred persistent increments of quarterly earnings. Looking ahead, we sought evidence of reasonable and sustainable growth rates poised to catch investors' attention in a sober marketplace.

(Icon8888 comment : YES, this is consistent with what we observed here at Bursa. If a company can deliver higher earning for two to three quarters, it will usually be substantially re-rated)

(d) There is always debates about appropriate time horizons for calculating earnings growth. Five years worked for Windsor. Windsor is always poised to react to events that occurred in a shorter time frame, but, ultimately, long-term financial results drove Windsor's long-term investment performance.

(Icon8888 comment : short tem focus but prepared to hold long term - Very similar to my investment philosophy. I like Uncle Koon’s Golden Rule of “buying stocks that next year earning is expected to be higher than current year”. Its short term focus helps to minimize black swan events. However, in the event that things turn sour, investors must be prepared to hold on (otherwise your paper loss will crystalize to become real loss). In order to hold on, the stocks you buy must have sufficient good quality to ultimately recover. In Windsor’s case, it gives itself 5 years to ride out the rough patch)

Posted by qqq3 > 2019-01-20 12:23 | Report Abuse

The timing for a focus on contrarian investing cannot be better

Posted by qqq3 > 2019-01-20 12:24 | Report Abuse

but on a certain level, every time buy red in order to sell green is also contrarian trading.

Posted by qqq3 > 2019-01-20 12:25 | Report Abuse

just the scale that is different.

Posted by qqq3 > 2019-01-20 12:29 | Report Abuse

very impressive results with Amarda and MBM, immediate dividend.

Posted by qqq3 > 2019-01-20 12:37 | Report Abuse

so now, we have the contrarian ( Icon ) and we have nothing but the best....( 3iii and Philips the Long).

I like both.

But I am not a long term guy ( hope my son is).....I can only follow Icon style.

There is a lot of businesss sense and strategy in it

Posted by qqq3 > 2019-01-20 12:40 | Report Abuse

contrarian at the fundamental level means what? It means how to benefit from a changing landscape.

nothing but the best means what? it means, u are good in what u do and things will even be better.

Posted by qqq3 > 2019-01-20 13:06 | Report Abuse

related to contrarian stock picking is how fast is the portfolio turnover.

buy and hold had a terrible year for 2018...

when is the dateline for the truce? People are trading as long as truce is open, and hope wins the argument.

Posted by Icon8888 > 2019-01-20 14:06 | Report Abuse

Yes, the Essence of contrarian investing is that you adapt to changing landscape

Nothing is to be held forever. John Neff sold his stocks in 8 months if it makes money

Posted by Icon8888 > 2019-01-20 14:21 | Report Abuse

Investing is no more defined as only picking good stocks and hold forever to enjoy compounded return

Buying an overlooked stock to wait for market to rectify mispricing and hence provide opportunity to cash out, is also considered investing. Even if it happens within few months

short term activities are no more illegitimate

In short, anything bought based on careful calculation of value and proper reasoning, and in the event that things turn sour , can be held until recovery, is considered investing

Holding period is totally irrelevant

Posted by qqq3 > 2019-01-20 14:42 | Report Abuse

the traditional division (yin-yang) of value investing vs growth investing is turned on its head and is better classified as contrarian investing vs only the best ...I like this modern interpretation better.

Posted by Icon8888 > 2019-01-20 14:43 | Report Abuse

https://klse.i3investor.com/blogs/icon8888/190807.jsp

Posted by qqq3 > 2019-01-20 14:47 | Report Abuse

I never liked the word value investing because it is my belief markets are actually quite efficient one ( in valuing stuffs) .....don't fight the market.


But , one can benefit from changing landscape if one studies properly and put on the the thinking cap.....

Posted by qqq3 > 2019-01-20 14:59 | Report Abuse

A lot of flaws in Big Ben ( that Benjamin Graham thinking) and mythologies about Wallen the Buffalo especially as applied to Bursa in modern era.......

I prefer the new dichotomy.....contrarian vs only the best.

Lots more room flexibility and thinking, and yet very focused.

Big Ben focused on the numbers, we focus on the landscape. Let the market value the stuffs. We just focus on the changes and potential changes.

Posted by qqq3 > 2019-01-20 15:06 | Report Abuse

Armada is a good contrarian buy because of its long consolidating at the bottom......and now a better story emerges.

Posted by Icon8888 > 2019-01-20 15:08 | Report Abuse

The biggest challenge for portfolio churning is reinvestment risk

I am arguing that contrarian investing, due to its ability to accommodate changing landscape, can mitigate that risk

With reinvestment risk out of the picture (or substantially attenuated), portfolio can achieve long term sustainable growth

In other words, break out of the karmic cycles of making money and then losing back money

And thereby achieve financial enlightenment

Posted by qqq3 > 2019-01-20 15:34 | Report Abuse

Truth be told, I don't have trouble finding the right stocks to buy....I just needed a way to anchor my thinking. Other wise , I sell too fast.

This rally, I sold FGV and gKent too fast.

I think I have found it now....

Posted by Icon8888 > 2019-01-20 15:59 | Report Abuse

In medical term, it is called premature ejaculation

Posted by qqq3 > 2019-01-20 16:41 | Report Abuse

So why is Value Investing such a popular term?

Is it because it works or because there are lots of Value Investing money sifus......?

Its the latter

Its easy to teach terminologies and definitions , Balance Sheet and P /L , that kind of stuffs.

How to teach Business Sense and Contrarian Investing? Not easy., and if one tries to teach it, it is not impressive and cannot collect fees but it works.

Posted by qqq3 > 2019-01-21 23:40 | Report Abuse

This thread will help anyone to be better trader.....that includes me...

Posted by qqq3 > 2019-01-22 10:31 | Report Abuse

only 3 ways to make money out of stock market

1 greater fool theory
2 benefit from changing landscape
3 participate in the growth of excellent companies, as the Bursa is
originally intended.

value investors say they make money by arbitraging their valuations vs the market valuations......really meh? so easy one ah?

what about the history, the reputation and all the millions of other factors of the investee

what about the character, habits and practises of the practitioner?

what about the efficient market theory?

if there is a difference between their personal valuations vs the market valuations...who is right who is wrong also don't know yet, only time will tell......but I know freshies have stronger opinions than old hands.......

and so, I support Icon's call that Wallen Bufalo is dead in the water in Malaysia., together with that Big Ben....


easier to make money from 2 and 3 above....not from 1 above.....