May 10, 2006
"Bucking Conventional Wisdom: What You Might Learn From Contrarians"
"Events generally develop quite differently from what most investors expect, so it is useful to try to choose which components of the consensus are going to be wrong and whether reality will be better or worse than expectations," says Byron Wien, U.S. Senior Investment Strategist for Morgan Stanley, in "The Ten Surprises of the New Year," an annual list that could serve as a mantra for contrarian investors. Buck-the-herd mentality isn't the right approach for everyone, but it is difficult to ignore the success that Wien, Warren Buffett, and others have had. Consider how you might apply the tenets of contrarian investing to your portfolio.
Think for yourself. Contrarians seek out neglected stocks, such as healthy companies with temporary setbacks, in which they see potential not yet widely noticed in the market. Investor neglect may drive share prices down creating opportunities to "buy low and sell high."
Do your homework. Not every neglected stock is worth buying. Look for characteristics such as strong balance sheets, solid management, and favorable earnings prospects.
Have patience. Contrarian investing requires a long term, buy-and-hold approach. Out-of-favor investments may take time to turn around, gain popularity, and rise in market value, if they ever do.
Diversify. Spreading your money among various companies and industries may help reduce your risk should any of your investments not perform as expected. (Diversification will not ensure a profit or guarantee against a loss in a declining market.)
Whatever your investment style, we are ready to assist you with Morgan Stanley's award-winning research. To contact us for more information, please call: Michael Pellman, Financial Advisor-Retirement Planning Specialist, Morgan Stanley, 631-284-5213