Simon Mawhinney

Contrarian investing is akin to value investing, but the difference is that contrarian investors will also consider investing in depressed stocks that have high traditional valuation metrics.

Allan Gray chief investment officer Simon Mawhinney says value and contrarian are often considered close cousins – both are focused on the price you pay for an asset. But being able to also purchase companies that may have depressed earnings, and therefore high multiples, gives the contrarian investor a wider playing field on which to look for opportunities.

Contrarian investing also gives investors an opportunity to avoid popular stocks and instead invest in out-of-favour shares at a discount.

“At it’s core, we believe the greatest returns on offer come from investing in companies that are out of favour,” Mawhinney says.

“They’re out of favour because they might have made a few missteps or, more likely, due to a deep and protracted cyclical downturn that the investment community has lost patience with,” Mawhinney says.

He adds they instead take a long-term mindset to investing in the same way a business owner would.

“This allows us to undergo periods of market volatility or share price underperformance as long as we are convinced that the business fundamentals remain sound,” Mawhinney says.

The momentum phase  

Allan Gray’s research also sees a great degree of trending in markets in recent years. Sometimes referred to as momentum, trending in markets is where the recent winners continue winning and previous losers continue losing.