The billionaire investor's variation on "buy low, sell high" is an eye-opener for those who tend to flock to favored companies. With the Dow dipping below 10,000 this week, investors willing to escape groupthink and deploy contrarian thinking may be able to make money.
stock has turned to kryptonite -- no investor wants to touch it. The company's efforts to staunch the flow of gushing Gulf oil would be laughable if the situation weren't so tragic. It would be incredibly foolish to buy BP's shares, wouldn't it?
On Wednesday, shares of BP plummeted more than 15%, trading at about half the level of their 52-week high. Investors have grim prospects for the company's survival.
But did the Valdez prove to be Exxon's fatal undoing? Since that infamous spill in the late 1980s,
stock has risen 10-fold.
Also consider that, despite the magnitude of the BP disaster, federal environmental fines are capped at $75 million. There's talk that Congress could lift that ceiling to $10 billion and the Obama administration may demand that BP pay oil workers' lost wages, but even that would hardly be crippling. Coincidentally, $10 billion is the amount that BP was on track to pay in dividends this year.
Contrarians may say that, with BP, you buy in cheap and a few years from now the stock doubles or triples, while a fat dividend sweetens the deal. The downside, of course, is that BP collapses and you lose everything.
For investors who want a more knowledgeable hand placing the bets, a variety of mutual funds follow contrarian strategies.
Janus Contrarian Fund
seeks out-of-favor companies that have unrecognized value.
"Contrarian investing is only appropriate for investors with a long-term investment horizon," longtime manager David Decker says. "You have to have the conviction to invest opportunistically when you find quality companies that are not widely understood."
The fund rose 21% last year and counts among its major holdings
Kinder Morgan Management
CB Richard Ellis Group
There are also funds similar to the Janus offering that, despite growing more conservative over the years, still look for bargains that most investors have overlooked, including
Perritt Micro Cap Opportunities Fund
RS Value Fund
Best known to many is the
, which holds $63 billion in assets and is the company's largest stock mutual fund.
In recent years, the mutual fund has focused mostly on large-cap, growth-oriented companies like
Investors have done well with the Contrafund. The mutual fund has beaten the benchmark
this year and last.
-- Reported by Joe Mont in Boston.
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