Prof. Sanjay Bakshi’s last piece was on identifying “mispriced” businesses and stocks. He set out seven patterns on what causes the said mispricing and how investors can learn to identify that.
The Prof has expanded on that theme in his latest piece dealing with “contrarian investing”.
The Prof has first pointed out that contrarian investing is not about betting against the crowd but it is about having an independent mind. He adds that some people mistakenly believe that automatically betting against the market i.e. being a blind contrarian is a good investment strategy. He calls this a “foolish” way to think about it. He says it is the functional equivalent of driving on the wrong side of the road – which is sure to eventually cause an accident.
The Prof emphasizes that having a contrarian mindset is terribly important because a contrarian mind is an independent one. Anyone with a contrarian mindset would look at things sceptically and not get swayed by the fads of the moment.
The Prof explains that all value investors have a contrarian mindset because they don’t get swayed by the crowds. They look for value in unpopular, out-of-favor situations. However, that’s not all they that they do. Even in some popular sector, they may invest in a business because their data and analysis shows that despite the popularity of the sector, the business is undervalued.
The Prof has used the opportunity to drive in his pet point that value investing is not confined to investing in “low P/E” stocks but includes investing in top-quality companies even if they are quoting at a high P/E. He points out that many great long-term investments have been made at what appears to be a high P/E ratio but have still turned out to be excellent ones in the long run because they were still under-valued. So, all successful value investors with an excellent long-term track record are likely to have a contrarian mindset, the Prof added.
Prof. Bakshi has also made the important point that while making mistakes is inevitable and acceptable, we must seek to avoid making them by ensuring that we stay away from poor quality businesses and managements and also by avoiding overpaying for anything we buy.
The most important part is that the Prof has cited the beleaguered realty sector as an example of a “contra” bet. He points out that while the beating that the sector has received is rightly deserved by some companies, the taint has also been wrongly applied to some excellent companies in that space. “So for a value investor with a contrarian mindset, it is a good place to look for value” the Prof added with a gentle smile on his lips.
Unfortunately, the Prof again did not name any stocks. However, we don’t have to struggle much because the two realty stocks in Prof. Sanjay Bakshi’s portfolio of glittering multi-baggers are Ashiana Housing and Poddar Developers. Both are top quality businesses, with excellent management pedigree and are quoting at reasonable valuation.
So, if one is inclined to be a “contrarian” and tuck into realty stocks, these two stocks are a good place to start the research.