Contrarian Investing and the Next Big Thing: Two Investing Strategies with Great Potential in This Uncertain Financial Climate

Today, most people know the original idea of The Road Less Traveled as a self help book published in 1978. Written before the digital world seemed to distort reality, M. Scott Peck segments the fateful decision of choosing which road to follow into three decision gears:

1. Step One: Growing Up

2. Step Two: Knowing Your Self

3. Step Three: In Search of a Personal God

Isn’t it true that each investor must personally take these three steps to earn long-term wealth? Growing up means leaving behind get-rich-quick schemes and accepting a long-term approach to life and money. Knowing your self means accepting financial limitations even if you’ve been blessed with monetary abundance. Finding your personal God means deciding to be led by principles and wisdom instead of foolishness and ignorance.

Everyone should read The Road Less Traveled at least once in their lifetime if for nothing else to learn how to ask the question Why?, and understand its answer.

It would be difficult to find someone who remembers the inspiring and motivating poem of a similar name. Robert Frost penned The Road Not Taken back in 1916, but its meaning is substantial today, especially for those still interested in creating and preserving wealth, and brevity helps to seal its importance:

The Road Not Taken

TWO roads diverged in a yellow wood,     

And sorry I could not travel both       

And be one traveler, long I stood      

And looked down one as far as I could     

To where it bent in the undergrowth;                 

Then took the other, as just as fair,    

And having perhaps the better claim,      

Because it was grassy and wanted wear; 

Though as for that the passing there

Had worn them really about the same,              

And both that morning equally lay  

In leaves no step had trodden black.        

Oh, I kept the first for another day!   

Yet knowing how way leads on to way,    

I doubted if I should ever come back.               

I shall be telling this with a sigh 

Somewhere ages and ages hence:  

Two roads diverged in a wood, and I—     

I took the one less traveled by, 

And that has made all the difference.

---Robert Frost

The world likes to direct us down the path of instant gratification, but the road to health, happiness and financial prosperity never seems to exist down that road. Many people don’t come to that realization until its too late. It is so easy to follow the path everyone else is traveling. We’ve seen that even some very smart people get trapped in the flow of popularity and majority thinking especially when there is quick money to be made. But “in the end,” the road less traveled is the one that proves to be real road to riches.

Many years ago, it took an amazing book and an astounding poem to convince people of the potential of taking a contrarian approach to life, starting a business and even investing. Although the masses are still easily swayed to follow others, people understand the value in taking the less ventured road than ever before. There are two methods for profiting from a contrarian approach to investing. One, take the road less traveled, as we have already discussed, and two, take advantage of the next big thing before the masses have discovered it.

This other strategy assumes that everyone will eventually discover how profitable the road less traveled actually is. You just have to beat them to the punch. Both of these methodologies bring a wealth of possibilities. We’ll finish discussing the principle of “contrarian investing” and then next week explore how to capitalize on “the next big thing.”

Contrarian investing is a investment principle that has only recently gained favor. This is in part due to the financial collapse of the past three years. So new is the concept of contrarian investing that an informal search on Wikipedia produced a new page created as recently as last year and which can be found here - http://en.wikipedia.org/wiki/Contrarian_investing.

The Wikipedia definition is interesting but not entirely helpful. It cites Warren Buffett as one of the principle proponents of contrarian investing when he is more known for “value investing.” As the founder and CEO of Berkshire Hathway, Warren Buffett is obviously known as the most successful investor of all time, but many people don’t know that Warren Buffett has shied away from investing in technology and the Internet. His advice has been that investors should invest in what they know, not what they don’t understand. With Berkshire’s capital resources, imagine how many more billions could have been made investing in Microsoft, Cisco, eBay and other tech companies over the past thirty years if Mr. Buffett only would have allowed his research staff to help him understand tech.

To become a successful contrarian investor does not mean to choose the road less traveled every time. It means to see value within industries, products, services where others see junk. Better yet, contrarian investing is the discovery of undervalued assets, or undervalued on the surface, but beneath reveal a pot of gold. They key is to figure out why the assets will increase in value, and when. Like all investment strategies, contrarian investing requires study and practice. Becoming a contrarian investor by developing your understanding of why and when could make you a fortune.