About Us
Investment Philosophy
It is believed that long-term performance is driven by the consistent application of a sound investment philosophy. The key characteristics of our investment philosophy can probably be best summarised as follows:
Valuation based
Contrarius seeks to buy stocks that it believes are trading below their underlying intrinsic value and which are considered to be attractive relative to other available opportunities it has evaluated. The larger the discount at which a company trades to its underlying intrinsic value, the more attractive the stock. Contrarius seeks to sell stocks that it believes have reached their underlying intrinsic value or which are less attractive than other opportunities it has evaluated.
While it may be possible to determine whether a stock is trading either at a discount or a premium to the company’s underlying value, it is impossible to know when the market will recognise the underlying intrinsic value of a business and re-price the stock accordingly. Given our investment philosophy, the timing of both purchases and sales may appear 'early'.
In the case of purchases, the stock price could and often does continue to fall due to short-term negative sentiment and outlook for the business. Provided one’s assessment of intrinsic value was however correct, short-term price declines do not typically represent a permanent loss. The same is true of sales that may be regarded as too ‘early’. Contrarius would rather sell a stock when it reaches fair value despite the short-term positive sentiment and outlook for the business. By selling at fair value, Contrarius is able to avoid the permanent loss that is likely to result from continuing to hold a stock that ultimately corrects to fair value. At the same time the sale of the stock at fair value creates the opportunity for the Fund to establish new positions in stocks that it believes are trading at a discount to fair value.
It is believed that the consistent application of this approach is essential in achieving our objective of creating long-term wealth for our clients.
Contrarian
Given the wide-ranging interpretations of ‘value investing’, our investment philosophy is probably best described as ‘contrarian’. ‘Value investing’ is often focused on finding cheap shares characterized only by low price to earnings or price to book ratios. As a result ‘value’ investors’ often shun high quality shares with above average long-term growth prospects in favour of companies with below average long-term growth prospects, simply because the latter trade on low multiples and therefore appear cheap. However, in many instances the reason these shares are trading at depressed multiples is not because their prices are depressed but because their earnings have experienced a period of above average growth and are at a cyclical high.
A contrarian approach, while always considering the underlying intrinsic value of a company, is nevertheless mindful of the earnings cycle and careful to avoid companies that appear “cheap” but which carry substantial earnings and therefore price risk. Given this contrarian approach, it is expected that our selection of stocks will differ materially from that of a typical performance benchmark index.
Long-term Approach
Contrarius takes a long-term approach to investing, with a typical investment horizon of four years. It is believed that the ability to outperform in the long-term is largely determined by focusing on the long-term value of a business rather than short–term news flow. In the short-term stock prices tend to be driven primarily by market sentiment and the immediate earnings outlook rather than the underlying value of the business.
Fundamental Research
Our investment philosophy is valuation based with investments selected following detailed proprietary research undertaken by Contrarius. This 'bottom-up' research seeks to determine the underlying intrinsic value of the investment.
