Contrarians pursue profits by running against the pack
Looking for an offbeat investment prospect? Well, consider a St. Paul company called American Hoist & Derrick. A typically depressed heavy-equipment manufacturer, Amhoist lost $21.8 million last year and is expected to wind up in the red again this year. Two of its primary markets, the petroleum and timber industries, remain sluggish. Its stock has been sagging in the bull market and now sells for $15, vs. a high of $26, reached in 1980.
Not interested? Openly contemptuous, in fact? Then you are hardly a contrarian. To a good contrarian, Amhoist's expected profits in 1984 will still be meager enough to make it an out-of-season bargain, like snow tires in July. The fact that few other investors are attracted to it is all to the good. Contrarians are a stubborn breed who relentlessly resist the natural human tendency to run with the pack, and Amhoist is just the kind of stock they thrive on. Or hope to.
Of course, maintaining such an attitude is hard work, requiring constant discipline and regular rededication. Thus for the past 21 years, contrary investors have annually trekked far from Wall Street's madding crowd to band together for a few days and offer one another encouragement and advice. Last week more than 300 gathered in Vergennes, Vt., for the Contrary Opinion Forum at a resort on the shore of Lake Champlain.
Donning a battered top hat, Conference Organizer James Fraser, 53, called the meeting to order by banging a soup pot with a wooden spoon. The members of his audience, who ranged from stock-market dabblers to professionals from Merrill Lynch and Dean Witter, wore buttons proclaiming slogans like THINK FOR YOURSELF. Said Fraser: "Contrary opinion teaches us to be thoughtful nonconformists, keeping us from being led astray by popular opinion."
Like all other investors, contrarians follow the obvious credo of buy low, sell high. But they avoid buying or selling at obvious times. They also avoid securities heavily favored by analysts, the ones that most investors buy, because contrarians believe that mob psychology has already made the stocks too expensive. Says Fraser: "We seek unloved situations before they become attractive to others." A former New York City banker and Wall
Street broker, Fraser draws his authority from the fortnightly Contrary Investor newsletter ($80 a year), which he publishes from his stone house overlooking Lake Champlain. In August 1981 he urged his 1,000 subscribers to buy Sears, whose stock had fallen to $16, from $62 nine years earlier. Most investors perceived the retailer to be in terrible shape, but Fraser believed its troubles would pass. Last week Sears shares closed at $40.