Today I attended a session on Contrarian Value Investing. During the speakers prepared remarks I began to think about whether our investment philosophy here at Acropolis could be characterized as contrarian.
It’s easy to say that we are value investors. We have value biases in many of our stock asset classes, and by a slightly different definition we invest fixed income dollars with a value bias too. But are we contrarian investors?
I think by some definitions of the word we aren’t. According to the speaker, to be contrarian you have to have enough conviction in your valuation of a company that you must be willing to hold a concentrated position in the stock. We certainly don’t do that. We have conviction, but we also believe that truly successful picking is nearly impossible, so we favor diversification over concentration.
But if you look at some other characteristics of word, we do look like contrarians. We do like to buy stocks that are out of favor. Value stocks are cheap because they are out of favor for some reason. Buying a company’s stock when others are selling is definitely contrarian.
I believe our systematic rebalancing strategy is also contrarian. Asset classes can become either overweight or underweight due to market fluctuation. A performance chasing strategy would pile into an asset class that is beating the others, but we take the other action. We reduce asset classes that become overweight and buy asset classes that are underweight. Not because we are looking for an immediate reversal in the market, but because a disciplined rebalancing keeps the allocation from drifting off course.
We are also patient in our investment strategy. New, hot investment products can get a lot of attention quickly, and sometimes fall out of favor even quicker. We prefer to wait and be assured that the product is actually delivering what it aims to. In our opinion if it’s worth owning for the long-term then waiting a little while shouldn’t matter. Value investing takes patience because it doesn’t always work, and it can even do poorly for an extended period of time. Patience can be the contrarian view sometimes.
In the end I decided that Acropolis is contrarian. Maybe not by every single definition of the word, but overall I think we are. And I think it’s a good thing.