How Contrarians Win

You must have the patience and conviction to stick with what is, by definition, an unpopular bet.

In his classic book The Money Masters, John Train recounts how just after the start of World War II, a young John Templeton placed an order to buy $100 worth of every stock that traded on a U.S. exchange for $1 per share or less. After the broker reported that he’d bought every such stock except those of companies in bankruptcy, Templeton replied: “I want them all. Every last one, bankrupt or not.”

Once all the orders were executed, Templeton owned shares in what Train calls a junk pile of 104 companies (34 of them in bankruptcy) for a total of about $10,000. Convinced that war would pull the U.S. out of the Great Depression, Templeton had bought the market’s most neglected shares, betting that they would gain the most. After holding the stocks for an average of four years, Templeton eventually sold all of them for more than $40,000, cementing his status as a classic contrarian investor. His oft-repeated quote on the subject: “It is impossible to produce superior performance unless you do something different from the majority.”

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John Heins
Contributing Editor, Kiplinger's Personal Finance