BOSTON (TheStreet) -- The greatest stock-market opportunities are investments that are unpopular, unknown or unpublicized, according to Scott Phillips, a fund manager at Lauren Templeton Capital Management.Phillips, based in Chattanooga, Tenn., is the author of the recently released Buying at the Point of Maximum Pessimism: Six Value Investing Trends from China to Oil to Agriculture, (FT Press, 2010). TheStreet spoke to Phillips about the role of contrarian investing and how value opportunities have emerged amid the latest economic crisis. How important is it, when searching for value and opportunity, to avoid the herd mentality? Phillips: Looking for low valuations will lead to contrarian investments just as easily as looking for contrarian investments should lead to low valuations in the market. I may not set out to only buy securities that have been hastily sold off, become unpopular or are ignored, but if I follow my methods for valuing stocks and only focus on the most attractive valuations, I inevitably end up in contrarian situations. The greatest opportunities tend to appear where stocks are being avoided. Stocks tend to be avoided because they have become unpopular, or are simply unknown and unpublicized to investors. This is how their market prices become too low in relation to earnings, cash flows, book values and so on. People often make decisions based on what everybody else is doing or on headlines. How important is it to break this mindset? Phillips: Many investors will struggle with strictly adhering to buying stocks with the most attractive valuations in the market because there is tremendous psychological inertia to doing so. Humans are innately social creatures and base a considerable amount of decision making on observing the behavior of others in the absence of firsthand information. Most often in the stock market, investors receive their information from others rather than do their own homework. The most recent widespread example of this relationship and its ill effects occurred in the CDO
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