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I have been building a position in a stock which is in a sector that seems to be universally hated right now. I am starting to rethink this strategy. Thoughts? -- Submitted via Stockpickr Answers
It sounds like you are acting like a good
contrarian investor, which is a strategy used by many of the most successful investors in the world. Just think of
) who tends to invest in "boring" and "old" (but financially strong) companies like
At any given time, certain sectors will perform better than others. Investment managers use
sector rotation strategies to capitalize on the current economic cycle.
If you are investing in a "hated" sector, that means you are buying a stock in a sector that is cheap, which is the best time to buy anything. Eventually, your sector will come back into vogue with the economy and investors.
Utilities, for example, were considered a boring sector during the Internet and technology bubble of the 1990s. The utility stocks were hated and went nowhere. But when the tech bubble popped, utility stocks like
everntually started to take off because people wanted stocks that offered
dividends and "safety."
Meanwhile, if you were chasing tech shares in early 2000 because it was a "hot" sector, then you were in for a big, big fall.
As a contrarian investor, however, make sure, that it's the sector that is "cold" and not your particular stock. For example,
is struggling to compete with
, which are all in the hot mobile device "space."
If you own shares in a bad company, then don't expect the rising tide of a good sector to lift your boat too much. Bottom line: If you want to own a stock in a hated sector that will eventually come back, then make sure it's the best one in that sector.
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.