There is always a group of investors that trade against trends, an investment strategy referred to as contrarian investing. And there are even more that envision themselves as contrarians, yet when the going gets tough they rarely have the guts to be true contrarians. To be a true contrarian you need to have both an insane level of risk tolerance, but also an equally insane level of patience.
Investors and people in general follow the herd because it is safer and doesn't require you to stick your neck out and risk chopping off your head. There isn't any media scrutiny from investing in the herd, your friends won't think you're crazy, and your significant other won't threaten to leave you for buying IBM (IBM) at $195 (IBM is a blue chip after all, a can't miss!). The "risky" trade is always the one that flies in the face of conventional wisdom. Buying Apple (AAPL) in 2002, shorting Yahoo (YHOO) in 2000, shorting oil in 2008, wearing Jams in 2012, sticking with Z Cavarricis some 20 years after they lost their cool...
The concepts behind investing are no different than basic animal nature. It's always safer to be in the herd than outside of the herd. You don't risk career suicide; you can sleep at night if your popular pick goes south because millions of other investors suffered the same downfall you did. But the real money is made when you go against the grain and go long stocks in March 2009, picking up Pier 1 (PIR) at $0.15 and riding it for a 100 bagger. Sure you could have gone with high yield stocks like Johnson & Johnson (JNJ) and made 50%+ over the next 3 years. But you would never get to the "screw the rest of the world" level of money you always dream of. You know, the kind of money that allows you the freedom to walk into your boss's office and flip him the bird without a care in the world of the repercussions.
Here are a list of potentially the most hated trades today that some investors, true contrarians, are taking part in:
Savient Pharmaceuticals (SVNT)
Maker of the drug KRYSTEXXA, which received FDA approval in 2010 and has had a slow start. The stock dropped from over $20 to under $0.60 this summer. It has since gone up over 100% since I wrote about it a month ago (I have since sold my position) but it is still at the risk of bankruptcy, according to one noteholder. If I was truly a contrarian I would be holding through thick and thin, waiting for even more upside as I believe it has the potential to get all the way back to $4 a share. But I lack that key trait that makes a contrarian so unique: patience.
You know when Goldman Sachs (GS) downgrades something after a huge move down, there is a really good chance it is near its bottom. After all, the odds of them initiating a position are quite high, and they want investors to bail at exactly the time they shouldn't. Add to this the fact that the sum of its parts might just be greater than its entire market cap, and you have the recipe for a potential home run turnaround story.
Natural Gas (UNG)
The supply boom as a result of fracking is a well known "story" spun by the media and the natural gas industry, but how many of the investing herd is aware of how much it costs to extract that natural gas from the ground? Certainly economics eventually play a hand. Companies like Exxon Mobil (XOM) won't be willing to lose their shirts over producing natural gas forever.
What other contrarian trades are out there that you think are the most hated trades today?