Making money from unloved and out-of-favour stocks

It takes a special type of person to be a contrarian investor. Few people are willing to buy companies while others predict doom. It requires accepting that you won’t always get it right, and the ability to put aside preconceived ideas about a company and focus only on the fundamentals.

One investor who’s made a career of this approach is Simon Mawhinney, Chief Investment Officer at Allan Gray Australia. It was this contrarian streak that saw him buying banks and retailers in the middle of the COVID-crash, a decision that turned out better than anyone could’ve expected at the time.

But it doesn’t always go so smoothly, as was the case with his investment in the now-defunct Arrium, which we discuss in this episode of The Rules of Investing. We also discuss two current investments from the Allan Gray portfolio, and one former market darling that he’s actively investigating.

Discussion topics:

• 1:55 - Simon shares the origins of Allan Gray.
• 5:55 - The rationale behind contrarian investing.
  
• 7:09 - The importance of alternative routes to an investment career.
  
• 11:43 - Managing a crisis.
  
• 14:42 - Strategies for making decisions in uncertain circumstances.
  
• 17:14 - How do you know when it’s time to exit an investment?
  
• 20:23 - Methods for finding new investment ideas in today’s market.
• 22:10 - Simon gives his view on an former market darling that's fallen from grace.
  
• 26:53 - Simon’s take on gold miners and physical gold.
  
• 34:42 - What the AMP split means for investors.
  
• 36:42 - How to deal with a depreciating share price.
  
• 39:22 - Simon answers our three favourite questions.

Reading recommendation:

• The Most Important Thing, by Howard Marks. Available on Amazon and Booktopia.
  

Want to learn more?

Contrarian investing is not for everyone, however there can be rewards for the patient investor who embraces Allan Gray’s approach. Visit the Allan Gray Australia Equity Fund profile to find out more.