A detailed analysis of one Fool's contrarian plays.
A few weeks ago I wrote the article 'The Loneliness Of The Contrarian Investor', highlighting the successes of some of my contrarian picks.
One poster made a very good point (hope you're reading this, DirtieDollie!) -- what about selection bias? That is, was I just picking out my most successful selections, and ignoring the ones that had flopped?
It's a very valid point. It's seductively easy to shout about your successes, and just not mention the calls you got wrong. It is hard to be humble.
So, to settle this argument, I thought I'd undertake a detailed analysis of all my contrarian picks over the past year. If we look at both winners and losers, how have I done?
Here are the rules: I will look at share picks I have made over the past 12 months. I will not include picks from this current month, as it is too early to really say how these are doing (if they were included they would make little difference to the results, as most of these shares haven't yet made much of a move).
I will only include picks that I have described as 'contrarian', 'turn-around' or 'recovery' plays -- ordinary 'value' picks don't count. I also only include shares where I completed a reasonably detailed analysis, rather than those I have just mentioned in passing.
Occasionally I have discussed these shares more than once -- for example, Barclays (LSE: BARC) -- in which case I have only included the article where I have described the share as a contrarian pick.
Finally, although I have tried to be as fair as possible, there is always a chance I have made a mistake. Let me know if I have!
So here are the results:
|Tip date||Company||Share price change, %||FTSE All-Share change, %|
|14/05/2012||Resolution (LSE: RSL)||5.4||7.5|
|14/05/2012||First Group (LSE: FGP)||17.7||7.5|
|29/12/2011||Barratt (LSE: BDEV)||94.6||7.1|
|14/12/2011||Fidelity China (LSE: FCSS)||-3.3||10.9|
|05/12/2011||Admiral (LSE: ADM)||19.6||6.6|
|05/12/2011||Inmarsat (LSE: ISAT)||34.5||6.6|
|05/12/2011||Kazakhmys (LSE: KAZ)||-23.7||6.6|
|23/11/2011||BSkyB (LSE: BSY)||2.8||15.4|
|23/11/2011||Aviva (LSE: AV)||18.3||15.4|
|23/11/2011||BP (LSE: BP)||1.4||15.4|
|17/11/2011||ITV (LSE: ITV)||34.3||9.3|
|17/11/2011||Vedanta (LSE: VED)||-18.2||9.3|
I have achieved a rate of return of almost double the market
So how have I done? Well, of 14 picks, 11 are up and three are down. On average my selections are up 16.3%, compared to the FTSE All-Share, which is up 9.2%. Considering the average time scale over which these picks have been calculated is roughly eight months, that is a very reasonable rate of return.
Overall, I have achieved an increase in value almost double that of the wider market; I have beaten the market by over seven percentage points.
You might notice that I have not mentioned dividends but, of course, income from dividends would further boost the returns -- especially since many of these companies -- notably Aviva, Admiral, Resolution and First Group -- are high yielders, too.
My biggest winners have been in some of the most unloved sectors: house building, banking, insurance and free-to-air broadcasting. My biggest losers have, interestingly, been in just one sector: mining. This is evidence that mining really is different, as I discussed just last week. The extremely cyclical nature of mining companies makes it harder to call the bottom.
But you know what follows pride....
Is it time to puff out my chest with pride? Well, perhaps, but -- to be honest -- I have surprised myself. When I made these picks I had absolutely no idea how these would do.
To be frank, I seem to have stumbled upon a way of investing that, quite simply, works. But you know what follows pride... Perhaps this is just beginner's luck. Perhaps contrarianism is something that just happens to work in this particular market.
Or maybe, just maybe, I really am on to something. Maybe this really is a framework for my investing strategy into the future.
Have I piqued your interest? Well, I certainly will continue to pursue this approach. I will continue to look for beaten-up, unloved and ignored shares to see if there are contrarian opportunities. Will I continue to beat the market? Well, we will just have to wait and see...
Perhaps the world's most celebrated contrarian investor is a certain W.E. Buffett of Omaha, Nebraska. He is noted for making calls that were much derided at the time, but turned out to be winners. Read our free report about the "One UK Share That Warren Buffett Loves".
Searching for dependable FTSE dividend shares? This free Motley Fool report -- "8 Shares Held By Britain's Super Investor" -- reveals the major companies favoured by high-yield legend Neil Woodford.
Further Motley Fool investment opportunities:
> Prabhat owns shares in Barclays, Fidelity China, Kazakhmys, Aviva and BP, but does not own any other shares mentioned in this article. He also previously held Admiral and BSkyB, but has taken profits on these shares.