What do we mean when we say we have a Contrarian investment philosophy?
We look for unpopular shares which means we need to go against the crowd
By being contrarian, we aim to buy investments that the rest of the market disregards or undervalues, rather than investing with the crowd. When a stock is popular with the crowd, the price tends to be driven higher (because there are more buyers than sellers of a stock). When a stock is unpopular, it means there is less competition to buy it. There are more sellers than buyers of the stock, so its price tends to be lower.
How do we do this?
We do this by focusing on valuations: we assess what we believe a company is worth, and we only invest where we believe that the stock price that we will pay is currently substantially lower than the value we are getting. The diagram below shows this.
Our investment philosophy
Why is a contrarian approach hard to follow?
Most people find it difficult to follow a contrarian approach. It is especially hard from a psychological perspective. It is difficult to be different and especially when it comes to having to go against the crowd and invest money in stocks that are currently unpopular, which is what our approach requires. We are all susceptible to ‘herd behaviour’ and we find safety in doing what everyone else is doing. However, at Allan Gray we won’t follow an approach if we don’t believe in its merits and have the results to prove its success.
So, does this approach work?
Yes. We believe in this contrarian approach because we have applied it successfully for over 40 years globally. During this time, we have refined and developed the approach. This includes the techniques for training successive generations of fund managers to apply this approach with continuity so that we can continue to be different and achieve differentiated investment results for our clients.
More about why we believe in a contrarian investment approach
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Equity Trustees Limited ABN 46 004 031 298, AFSL No. 240975 is the issuer of units in the Allan Gray Australia Balanced Fund ARSN 615 145 974, Allan Gray Australia Equity Fund ARSN 117 746 666 and Allan Gray Australia Stable Fund, ARSN 149 681 774 (Allan Gray Funds) and units in the Orbis Global Equity Fund (Australia registered) ARSN 147 222 535, Orbis Global Equity LE Fund (Australia registered) ARSN 613 753 030 and Orbis Global Balanced Fund (Australia registered) ARSN 615 545 170 (Orbis Funds). Allan Gray Australia Pty Limited ABN 48 112 316 168, AFSL No. 298487 is the investment manager of the Allan Gray Funds.
Past performance is not a reliable indicator of future performance. There are risks involved with investing and the value of your investments may fall as well as rise. This represents Allan Gray Australia Pty Limited and Orbis Investment Advisory Pty Limited’s view at a point in time and may provide reasoning or rationale on why we bought or sold a particular security for the Allan Gray or Orbis Funds or our clients. We may take the opposite view/position from that stated, as our view may change. If this article is authored by Orbis, it does not prohibit the Orbis Funds from dealing in the securities before or after this article is published. This article constitutes general advice or information only and not personal financial product, tax, legal, or investment advice. It does not take into account the specific investment objectives, financial situation or individual needs of any particular person and may not be appropriate for you. We have tried to ensure that the information here is accurate in all material respects, but cannot guarantee that it is.
You should consider the relevant funds’ Product Disclosure Statement (PDS) or Information Memorandum (IM), as applicable, before acquiring, holding or disposing units in the Allan Gray or Orbis Funds. The PDS or IM can be obtained from
www.orbis.com.au and www.allangray.com.au.
Target Market Determinations (TMDs) for the Allan Gray products can be found at
allangray.com.au/PDS-TMD-documents,
while TMDs for the Orbis Funds can be found at www.orbis.com.au on the 'Forms' page under 'How to Invest'. Each TMD sets out who an investment in the relevant Allan Gray or Orbis Funds might be appropriate for and the circumstances that trigger a review of the TMD.
Managed investment schemes are generally medium to long-term investments. They are traded at prevailing prices and the value of units may go down as well as up. There are risks with investing the Fund and there is no guarantee of repayment of capital or return on your investment. Subject to relevant disclosure documents, managed investments can engage in borrowing and securities lending. A schedule of fees and charges is available in the PDS.