It happens like this. One day you are studying the annual report of a company that nobody remembers or otherwise ridicules, and it's official: You are a contrarian investor. Committed to this method for a solid length of time, you likely have achieved a high level of investment success.
The natural consequence of your active mind is to reflect on how this all came to be. After all, it is more difficult to be a contrarian than a conformist; harder to tame the emotional beasts that lash out when going against popular opinion. No wonder most contrarians guard their independence and revel in their ability to "think outside of the box."
For one gent, reflection brought him back to the last year in high school, where the first precursors for laying the contrarian foundation occurred.
"Math of investment" was the subject, and for a school year, the class was to participate in a citywide stock portfolio challenge. Each team received a hypothetical sum for trading stocks on the Toronto Stock Exchange. Gord, a friend of the contrarian, who hoped to be on the same team, was unhappily forced to join another squad. Not to worry, assured David, the suddenly self-appointed leader of Gord's team. They already had a lock on class best, and looked good to whip the whole city, for his mother was a stockbroker on Bay Street and she would create and manage their portfolio.
After the first month, their team was mired in last place and never moved beyond this woebegone status. Gord's profane belittling of David and his broker/mother became a great source of class amusement.
How could someone who did this for a living be outperformed by a group of unruly high-school students? The short time frame could have been a factor, and "play" money was unlikely to solicit her best efforts. But the result planted the seed of skepticism as to whether the professional advantage is illusory. Perhaps the informed individual investor could do better.
But what of the contrarian's team? Convinced of David's familial advantage, a copy of the portfolio was obtained through surreptitious means, and their style of choosing blue-chip, household names was mimicked. Not surprisingly, the team joined David's in the cellar of the standings.
At the halfway point, the team became completely apathetic. But then the contrarian proposed a bold idea: Sell everything and put the proceeds into a single stock that he followed closely and appeared undervalued for some time. The stock was Maple Leaf Gardens.
The idea was voted down as being way too radical. Soon after, the stock began a great run that would have lifted the team way up in the standings, far better than anything the squad on ice could imagine.
The high school student learned many lessons. A strong distrust in so-called "safe" stocks or blue-chips was forged in the contrarian fires that year. Those large capitalized companies were often fully valued with a probability of going down, and though the risk was seemingly constrained, so too was the opportunity for reward.
Regret is the consequence of not following through on an opportunity such as MLG. Investing by consensus is a recipe for mediocrity. Buying simply because you have disposable cash -- real or imaginary -- and thinking that any day is a good day to buy stocks is poppycock. And a game on paper is not the same as plunking real money on the table.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter. This column first appeared on GlobeinvestorGOLD.com.