Contrarian Investing

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Caractéristiques

Auteur : Anthony M. Gallea & William Patalon III
Titre original : Contrarian Investing
Publication : 1998
Editeur : New York Institute of Finance
ISBN : 0-7352-0078-5
Nombre de pages : 288
Prix : 17,21 euros

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4ème de couverture

"Had Rudyard Kipling been a stock market observer, he might have written, 'If you keep your head when all about you are losing theirs, you'll be a contrarian.' Instead, Tony Gallea and Bill Patalon descripe the philosophy of contrarian investing in a concise, enjoyable and most rewarding manner."

ROD MITCHELL, PRESIDENT AND CHIEF INVESTMENT OFFICER, THE MITCHELL GROUP

"Contrarian Investing develops investment ideas that can apply to international as well as domestic markets. Developing an independent, disciplined thought process is invaluable."

MARK PHILLIPS, DIRECTOR AND HEAD OF GLOBAL EQUITIES, IVORY AND SIME INTERNATIONAL

"Tony and Bill provide an excellent discussion of cash flow and other fundamental measures to apply to stock selection. And, they've done it in a way accessible to most readers."

KEN BURGES, DIRECTOR AND ASSISTANT PORTFOLIO MANAGER
SYSTEMATIC FINANCIAL MANAGEMENT

"Investing with success is a never-ending battle. Contrarian Investing offers a wealth of resources to use."

MARK FITZPATRICK, VICE PRESIDENT, SPEARS BENZAK SALOMON AND FARRELL

ABOUT THE AUTHORS

ANTHONY M. GALLEA, a Senior Portfolio Management Director, and his 14 member team, oversee $700 million in assets at Salomon Smith Barney. He has written numerous articles and is the author of the Lump Sum Advisor.

WILLIAM PATALON III, recipient of four New York State Associated Press Awards for business writing, is a business reporter for The Baltimore Sun. He has also received awards from the Pennsylvania Newspaper Publisher's Association and the Maryland-Delaware-D.C. Press Association. He has an MBA from the Rochester Institute of Technology.

JIM ROGERS became a Wall Street legend when he co-founded the Quantum Fund. He periodically teaches finance at Columbia University and appears regularly in both print and electronic media. He is the author of the national bestseller Investment Biker.

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Foreword

SELL EUPHORIA, BUY PANIC

In 1980 the price of a barrel of oil had risen alarmingly and long lines of frustrated American motorists sat fuming at every gas pump.

      Newspaper articles appeared daily that bemoaned the permanent shortages in nonrenewable fuels, and every learned expert on Wall Street and in academia was certain oil would rise from $40 to $100 a barrel. Headlines in mid-1979 shouted, "Chaos in the Gas Lines", "Nationalize Big Oil ?" and "Recession Looms."

      Interest rates had risen alarmingly, and investors were hysterical over high inflation and labor unrest. There was a sense that the United States was slipping as a world power and that shortages in all sorts of goods were permanent--that the world was running out of everything. The stock market had been stagnant for years, and now it was clearly why.

      It was true that for a while in the 1970s the supply of oil was smaller than the demand, but with the rise in prices had come the inevitable rise in production. There were more drilling rigs, more money pouring into holes in the ground under the Gulf of Mexico, the North Sea, and South America, and more young people going into geology. Yet in 1980, while the popular press might not have gotten it right, the petroleum trade journals were clear: Rising prices has brought out enough oil to exceed the demand. Supply continued to increase, and yet the price was still rising, fueled by a media hysteria. This led to inventory building and hording.

      Consumers turned down their thermostats and bought sweaters. They bought smaller, more efficient cars and household appliances--changes in the public consciousness that would push down demand and hold it down for years to come.

      It made a thoughtful person wonder what was going on. The iron law of supply and demand makes perfect common sense: If there is more of an item for sale than there are buyers, the price goes down.

      If there is less, the price goes up. There may be time lags, but it has always held true. If, say, the stock market is at new heights, there are 500 co-op apartments for sale in Manhattan and 2,000 Wall Street yuppie buyers ready, willing, and able to buy one, then co-op prices will go up. If the stock market has crashed and only 250 yuppies want those 500 co-ops, the price will fall. Not even a Marxist economist will debate this conclusion.

      In fact, the thoughtful investor would read the newspapers and absorb what television reports had to say, and come to the conclusion that he should buy or sell the oil or the co-op. He would not need fancy charts or an MBA or economic advisors. He would think for himself, and gauge his timing on the extremes he found in public thinking.

      This oil panic seemed strange to me. I thought back to a visit I had made to a Tulsa drilling rig company in 1971. During the 1940s and 1950s, Tulsa had been the oil rig capital of the world and, since in 1971 I was bullish on oil, I had in mind investing in oil rigs, a "pick and pan" strategy. That is, rather than betting on prospectors' finding gold, I would invest in the less risky business od selling pick-axes and sluicing pans to prospectors. In this case, I would invest in the rigs needed by those who where going to drill for oil.

      The chairman of the oil rig company told me, "Oh Lord, Jim, I know I should not say it, since we need all the support we can get, but you seem like a nice young fellow, even if you are from New York. Don't buy our stock. It would be a big mistake. If only I weren't 55 years old but 28, I'd get out of this business in a minute. I'd start over in anything rather than oil. Drilling is a dying business."

      Ten years later every pundit who appeared in print was telling the world that oil was going from $40 to $100 a barrel. It was enough to make a thoughtful investor do some hard thinking. In 1971 everybody with any sense wanted out of the oil business, and in 1981 everybody with any sense wanted to be in it--and both were utterly wrong. By the mid 1980s the bottom had dropped out of the price of oil once more.

      What is a smart investor to do ?

      Well, one thing he can do is learn to listen to the popular press with an ear tuned for these extremes. At market tops, the refrain will run, "This time it's different from all other times. Trees will continue to grow and grow and grow. Buy yourself a tree and watch it reach 50 feet, 100 feet, a thousand feet. This is an investment you put money in and forget."

      At market bottoms, the song will go (as we can now hear in the melody for lead, the metal, which has become a pariah), "We've lost our chief markets, paint and gasoline. Lead is a poison and kills people. Prices are severely depressed. Every company with any sense is getting out of lead. It has only a marginal future." Phrases such as "disaster," "doomed," and "dead" will be used to describes such a market, and the alert investor will hear them clearly without a newsletter or a call from his stockbroker to advise him.

      At this point everybody in the investment world "knows" that lead is dead. But the savvy investor always examines the other side of what everybody knows. Am I telling you to buy a lead mine ? Not necessarily, but you might consider the use of lead in batteries, which continues unabated. The world press tells me the sale of cars and motorscooters to the Chinese, Indians, and other developing countries is growing steadily; won't every car and scooter need a battery ?

      Another example of what everyone "knows," and what could be a current bottom, is the producion of tea. Prices are down over a 15-year period. Tea plantations have been plowed under to make way for palm oil, rubber, and soybean production. I am bullish on tea: supply is down, demand is up, and the tea-drinking Far Eastern nations are becoming richer. But, when I chatted with the chairman of a major tea company recently, he told me he was selling off his tea assets.

      "But why?" I asked. "You of all people must know that you're not doing your shareholders any good by selling them off. Tea is so low now it has to come back."

      "I know that, but my shareholders say it might be another ten to fifteen years to big profits, and they can't wait."

      If enough companies sell off their tea assets, their loss can be the shrewd investor's gain.

      It is an old story in the stock market. Today's news articles trumpet the stock market as the ideal place to increase wealth long term, that nowhere else can parents provide so well for their children's college educations. And it is so easy, too. Put your nest egg in a mutual fund company, and it will do all the work.

      This is when my mother calls and asks what mutual fund she should invest in. When I tell her none, she becomes exasperated. "But Jim," she says in her most waspish voice, the one reserved for reminding me I have not learned anything since I was seven, "The stock market's gone up eight times in the past 15 years."

      "Momma, I know that. You're supposed to buy stocks before they go up, not after."

      She is right about the market rising. The Dow Jones index today is around 8,000, but 15 to 20 years ago when the index was under 1,000 and there were only 400 mutual funds, the newspapers put it: "Recession Looms" and "Surge in Interest Rates Puts Squeeze on Already Ailing Economics Sectors." Business Week ran a cover declaring "Stocks are Dead." (Some investors claim they are able to profit by taking the opposite tack to Business Week's covers. They sell when the magazine declares something is a good investment and buy on the "something-is-dead" covers.)

      In all markets, supply and demand are constantly rising and falling, hurtling from one extreme to the other. To an investor with the righgt ear and eye, fortunes are waiting to be made. Is it easy ? No. Does it take work? Yes.

      When oil did drop in price from $40 a barrel in the early 1980s to $10 in the mid 1980s, it took with it the real estate market in Texas. It became hard to give away real estate there. Texans invented the phrase "see-through buildings" for partially completed buildings without tenants or the prospects of tenants. Why build an office building when the Resolution Trust Commission, the folks who had taken over the assets of the S & Ls, would sell you two for the same price? Predictions were as gloomy as you can imagine: Texas had enough real estate to last it for the next two or three decades.

      Well, that turned out to be the time to buy. Today, buildings are again being erected in Texas. Those who bought buildings there for a few dollars a square foot are able to sell them for ten and twenty times as much.

      There is an old adage in investment lore that says, "Buy when blood is in the streets." Actually, it is sometimes best to wait a while. An investor did not have to buy during the riots in the streets of Whatts; a year later was time enough to catch the lowest prices and make a fortune. On the sell side, back at the end of the 1970s, when gold was on its way to $875 an ounce, I sold short at $675 on the way up and watched it promptly rise another 30 percent. Gold, of course, later fell sharply and has never made it back to $675. The lesson here is that timing is important. You can be right--but early--and suffer badly.

      The other pitfall of buying after the bottom is to sell your position too soon. The best way is to buy once the move is underway, and sell before the top. When no less an investor than Baron Rotschild was asked how to get rich, he responded that he always sold too soon.

      Long-term tops and bottoms are similar in that they usually go to extremes. In a bear-market panic driven by fear, as well as a bull mania driven by greed, the mob almost always goes too far. The wise investor expects such a run, gets out too soon, and is better off.

      So, the all-important questions become when to buy and when to sell. Timing is difficult. Note, howener, that all major market bottoms are alike, whether they are in the corn, stock, or real estate markets. The same is true for tops. Pick any previous top or bottom, anywhere, any time, from the beginning of time until now. When you study it, you'll see that the conviction of certainty of all the participants at the extreme top and the extreme bottom is startling.

      Learning to listen to the gloom and doom at bottoms and question it, and to the exultation at tops and question it, makes a sharp investor. It does not take esoteric knowledge or an MBA or some mystical skill. Read the newspapers, watch the television, and think. It did not take a financial genius to see that when the farmers were going broke in the 1980s and Willie Nelson was conducting Farm Aid concerts that some sort of bottom was establishing itself. After all, the world was not going to stop eating.

      Tops and bottoms are creatures of extremes. They rise above all rational expectation and then go higher, and they fall farther than common sense suggests.

      In a way, buying any security on the public market is like having a crotchety old uncle as a partner. When things are tough, all you hear from him is that the two of you should get out of the business; it never was any good; only a fool would have gone into it in the first place. Let things turn around, however; let a few years of profits roll in and his tune changes: This is the greatest business in the world; things will go well forever; let's not ever give this up. In fact, now that our shares have tripled, let's buy out everybody else.

      Your partner is utterly wrong in both his opinions. The trick is to study and think, think and study. When that crotchety old uncle wants to sell, that is when you should be thinking of buying. Not actually buying, perhaps, but giving it strong consideration. Then you have to figure out when to pull the trigger, and when to actually commit funds.

      At market tops, greed and hysteria always get the best of the crotchety old uncle, and at bottoms fear and panic buffalo him. The smart investor--the one who does not consider himself a financial genius, but trains himself to analyze the magazines and television, and to pick tops and bottoms by the extremes in the public's attitudes--learns to buy fear and panic and to sell greed and euphoria.

      The wise citizen keeps his head and watches for these extremes. But knowing the propensity of his fellows to form mobs, he himself is not caught up in their destructive force.^*

^* Reprinted from an article by Jim Rogers, author of Investment Biker.

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Acknoweldgements

Contemplating a book about contrarian investing is like thinking about climbing Mt. Everest. You're excited by the challenge, but overwhelmed by the difficulty. Fortunately, many great investors and thinkers have climbed that mountain before and in the process, developed a basic approach we were able to build on. This book, and the strategies it outlines, would not have been possible without the countless contributions found in the work of others. The authors freely acknowledge that we stand on their shoulders.

      We wish to thank our families and friends for their patience, encouragement, help, and (thankfully) good humor during this project. While son, boyfriend, father, or husband was distracted from the daily flow of family life, they carried on with kindness and we are deeply grateful to them.

      Many individuals were crucial to the creation of this work, and without them, it simply would not have come to life.

      Gratitude is due, as always, to Tony's partners on The Gallea Team who once again shouldered the daily workload so he could play author--Richard DiMarzo, Bonnie Lane, Paul Beck, Tara Nemergut, Donna Caufield, Darren Moran, Tom Teall, Sue Monnat, Valerie Adams, Jo Gallea, and Patty Davis. You are the best.

      A special thanks to Toni Elliott, Jennifer Hartmann, and Eila Baron, who worked relentlessly to help bring this project to life.

      Marge Whitney worked tirelessly on all the endless details for a successful launch and thereby earned our deep appreciation.

      We were blessed with interns who lent enthusiasm and hard work to the task of verifying sources, finding research, and reconstructing market histories: Jaime D'Amico from Cornell University spent a summer in the depths of the University of Rochester and Cornell libraries chasing down research; David Cheikin from Tony's almamater, the University of Rochester, assisted in screening stocks and applying our contrarian criteria to real world problems; and Darryl Porter from St. John Fisher College went to the original sources to help piece together the Crash of 1929.

      Thanks to Dr. Nancy Norment McCabe at Georgetown University Hospital for her critique and guidance on anxiety and loss in our discussion of investor psychology. Kudos also to Marshall Kaplan for his encouragement and leadership; to Chris Bicek at Imageview for his input into graphics design, to Jeff Newman once again for his excellent work as our attorney, and to Harry Sealfon, CPA, for his explanation of the taxation of stock options. Appreciation also to James Liddle of Legg Mason Wood Walker Inc. in York, Pennsylvania, Bill's friend and advisor, for serving as his sounding board for some of the strategies we would eventually craft. We are grateful, too, to Bill's friend, Robin Ritter, for her encouragement and feedback on the manuscript.

      To all the professors, academics, investment managers, analysts, and government offices whose published research was so impressive, whether or not it agreed with the contrarian case (and their institutions at the time of research publication): William Brock and Blake LeBaron at the University of Wisconsin; Josef Lakonishok at the University of Illinois; R. Richardson Pettit at the University of Houston (who was kind enough to clarify his research on insider transactions); P.C. Venkatesh at the Office of the Comptroller of the Currency; Yulong Ma at Alabama A&M; Jia He at the University of Houston; Andrei Shleifer at Harvard University; Robert Vishny at the University of Chicago; John S. Howe at the University of Kansas; Tweedy, Browne Co. L.P.; Value Line Inc.; Jack Schwager at Prudential Securities; Alan Shaw at Smith Barney; David Dreman, Werner De Bondt at the University of Wisconsin; Richard Thaler at Cornell; Torben Anderson; Vic Sperandero; Roger Ibbotson; the Public Affairs Office of The Securities and Exchange Commission; Wilbert McKeachie at the University of Michigan, Charlotte Doyle at Cornell, Henry Oppenheimer, William F. Sharpe, W. Scott Bauman, Richard Dowen, Julie Rohrer, John R. Chrisholm, Sanjoy Basu, Mario Levis, and James Rea. If we have omitted anyone, it is by error and not by design.

      We wish to thank the good people at Equis International for their excellent charting program MetaStock, whose charts are found throughout this text. Also, to the people of Bloomberg L.P. who have, in "the Bloomberg," created the investment world's truly great research tool.

      To our editor at Prentice Hall, Ellen Schneid Coleman, our thanks, our respect, and our gratitude for carrying the flag for this project to its successful conclusion.

      Finally, we wish to thank in Tony's case, his clients; and in Bill's case, his editors and--most importantly--his readers. It is the stimulation provided by their endless curiosity and their need for proven and common-sense investment advice that formed the true inspiration for this book and our desire to see it through to completion.

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Introduction

Achetez aux canons, vendez aux clairons.
(Buy on the cannons, sell on the trumpets.)
--Old French Proverb

Investing is a strange business. It's the only one we know of where the more expensive the products get, the more customers want to buy them. That doesn't happen with a car, a house, or a VCR. Usually, people shop for bargains. They haggle for good deals. They wait for a sale, when prices are marked down.

      It's not that way with the stock market. The higher prices go, it seems, the more the people want to buy. Of course, that's just the opposite of what investors should be doing. We have watched, on a daily basis, how people manage their money and how they make their investment decisions. Their thought processes, and their emotional responses to changes in the market, go a long way toward explaining their investment results, wich all too often are disappointing.

      When the stock market starts rising, most people are, at first, afraid to step aboard. It's not until stocks have gone up a long way for a very long time that most investors become interested and start buying. Conversely, when stocks begin to drop, most investors are not afraid. Their courage has been bolstered by the persistently rising tide. Just because the market has gone up a long way, investors believe it will keep going up. It's almost a gold-rush mentality.

      Contrarians buy on bad news, and sell on good news. "Buy low, sell high" is a well-worn cliché. But it's well-worn for a good reason: That's how an investor must think in order to profit.

      Both authors have had excellent seats from wich to watch the markets and individual investors. As a business reporter for Gannett, Bill Patalon has written on business topics too numerous mention. In following the difficulties and resurgence of Eastman Kodak as his primary beat, he's been able to see firsthand what can cause a company (and its stock) to falter, and also to see what is needeed for a turnaround. Writing every day for the typical investor has given Bill the chance to see how these investors approach the market, and how the news media helps forge the mass opinion that contrarians try to bet against. Time spent reporting overseas from China and Japan underscored for him how investors the world over can abandon sound strategies and fall under the spell of an overheated stock market.

      Tony Gallea, as a Senior Portfolio Management Director for Smith Barney, one of the country's largest financial services firms, has been investing for, and working with, individual and institutional investors for nearly 20 years. He and his team are directly responsible for more than $600 million in client investments. He uses many contrarian techniques and strategies in his daily work managing portfolios for individuals and institutions. Those strategies are outlined for you in this book.

      Bill used to attend Tony's monthly seminars, sometimes for story ideas, and sometimes simply to listen and learn. Over the years, a friendship developed as they each came to appreciate the contrarian in the other. This book is the result of that friendship.

      Contrarian investing is not new. In fact, it has a long history. But a review of the most recent litterature on contrarian investing revealed that a gap existed. Since contrarian investing can be a difficult strategy to follow, and requires commitment and discipline to make it work, many of the books on the subject are too complex or convoluted for the interested investor to follow.

      Too often, financial seers get caught up in highly technical discussions on such arcane points as what adjustments to make on some company's restated second-quarter earnings. Such debates are not only incomprehensible to most people, they can scare off the individual investor.

      We saw the need for a book, written in plain English, showing investors how to assemble a stock portfolio that's very profitable, has a chance to beat the market, and lowers their overall risk--all by betting against popular opinion. The book would not only include the latest research, it would boil it down into a simple-tu-use set of guidelines.

      Much of what passes for contrarian investing is actually "value" investing, a less-extreme discipline that shares some contrarian characteristics. The rest falls into the realm of gut instinct or market folklore. For instance, in an attempt to gauge market sentiment, contrarians might survey magazine covers at the local newsstand to discern when the crowd has reached an extreme opinion worth betting against in the stock market. A neat strategy, but how do investors translate that folklore into a disciplined investment strategy that can be used profitably time after time?^*

      In our search for information we were delighted to find that there's been considerable research during the past fifteen years that validates the contrarian approach. However, much of this research was written by academics, for an academic audience, and is, frankly, indecipherable to nearly all investors. It took considerable time to unlock the message. But we believe the effort was worthwhile and hope you will, too.

      During our journey, we made many new and exciting discoveries. One of the most important: Success as a contrarian demands a long term view, and a willingness to hold many of the stocks for two to three years. Many strategies and academics studies call for more active trading, wich for the typical investor can result in high transaction costs and disappointing results. We also found, to our surprise, academic research validating some technical analysis techniques, and research that poked a few fair-sized holes in the "Random Walk Theory."^**

      But most important, we found many studies that validate contrarian investing as a viable and, indeed, a preferred investment strategy.

      We wish to mention a word about criticism. Beaing a contrarian means betting against the crowd, and against the prognostiocators and pundits who, as highly visible experts, are the makers of mass opinion. A discussion of contrarian investing, by necessity, requires us to use specific examples of how individuals, organizations, and groups have been incorrect or have blundered along the way. We do not intend these discussions to be arrogant or cruel. Our society expends too much energy trying to make others look foolish or ridiculous in order to win a point or an argument. The fact that we are all capable of foolishness does not necessarily make us fools. Those of us who have spent any time at all in the investing game are nothing if not humbled by our own occasional lack of skill. The authors, too, have been humbled many times through the years.

      In today's society, people often feel a need to brand entire groups as out of touch, wrongheaded, or just plain stupid. The investment arena is no exception. Fundamentalists will ridicule technicians, contrarians will point the finger at momentum investors, and growth managers will argue with the disciples of value. In a book that shows how to profit by betting against the majority opinion, we would be remiss in not warning of the danger of assuming a superior state of mind. This arrogance leads to disaster, and must studiously be avoided. Indeed, we should point out that the crowd is most often correct. It's only when contrarians are buying or selling stocks that we want to be different (a point we must really amphasize).

      With these cautions in mind, we have tried to avoid personifying the techniques and studies presented in this book. If an analyst got an earnings report wrong, we didn't have the space to discuss all the things he got right. We leave it to the reader's sense of fairness to avoid this pitfall.

      This brings us the essence of contrarian investing: Buying and selling when others won't.^*** In buying, you've already bought your ticket and have the best seat in the house when the investment hordes start bidding for their own spots in line. In selling, you are out the door before the others, and won't be trampled in the stampede when the crowd rushes to get out of a stock. That doorway can be pretty narrow!

      Liquidity drive markets. By getting in early, you are in a position to let other investors drive up the price of the shares you already own. Likewise, it's when those same investors start taking money off the table (and out of a particular stock) that the price of those shares start to fall. Let us say it again: It's only when buying or selling that the contrarian wants to be different. Once we've made our moves, buying or selling, we want other investors to come around to our point of view.

      You will also find that out-of-favor stocks often pose less risk, since the bad news has already been built into their prices. In a falling market, that means stocks that already were trading near their lows will frequently drop a lot less than shares that had been trading near their highs.

      In this book, we show you how to make money on stocks by investing as a contrarian. We discuss some of the classic contrarian tools and show you a few new ones, too. We'll help you find and recognize contrarian stock plays, and leave you with a workable strategy with specific rules for buying and selling that takes a lot of the guesswork out of investing in stocks.

      This is not a get-rich-quick book. It's not financial alchemy. It's not magic. It's about basic, sound investment strategies that offer the prospect of excellent returns, with less downside risk than a portfolio stuffed with the latest "hot" ideas. We'll teach you to think like a contrarian, to recognize and avoid the mass-mania speculation that accompanies a market top. And we'll show you how to assemble the kind of investment portfolio that year after year will leave you feeling happy and prosperous.

      The contrarian path is not always an easy one to travel. Thinking and acting like a contrarian has never been--and never will be-- without challenges. We are conditioned from birth to go along, to think in a socially acceptable way. This conditioning makes true independent thought difficult. We're all more comfortable with lots of company than we are taking a solitary walk. Later on, we discuss the psychological reasons for this crowd mentality.

      Have you ever wondered why investors become more enthusiastic about a stock as its price goes higher? Why people don't sell when the market begins to decline? And why people hold on during a stock's long decline only to give up, sell at the bottom, and then watch with clenched fists as the stock rebounds and climbs to new highs? Contrarians can answer all three questions.

      We live in an enlightened, capitalist democracy. For capitalism to flourish, it needs large and active groups of buyers and sellers, all competing independently to set the proper price on an infinite variety of goods and services. It is dangerous for a capitalist system to operate with a heavy preponderance of either buyers or sellers. When this happens, markets can soar or crash, and economies can sicken and die from too much of a good thing.

      We have seen too many instances of speculation-turned-frenzy throughout history not to be nelightened by these lessons. In this book, we show how the Dutch literally ran to ruin over, of all things, tulip bulbs and how the Crash of 1929 began and why it became investment legend.

      In short, we examine why people act the way they do, and show you how the crowd's mistakes.

      That, in the final analysis, is the art of the contrarian.

^*In late 1995, Bill Gate's picture was on the cover of nearly every magazine of note. What's more, media hype of Microsoft's new Windows95 operating system was so great that Wall Street's lofty forecasts for sales could easily be missed. If ever a contrarian signal to sell a stock short existed, this was it! During the following year, Microsoft rose 40 percentn illustrating the pitfalls of using such subjective indicators as magazine covers as the basis for an investment strategy.
^**The Random Walk Theory, or Efficient Market Hypothesis, in various forms all come to the same conclusion: Stock prices can't be predicted because prices conform to a random--and therefore unpredictable--wandering through time. This is one of the most hotly contested areas in investment theory today.
^***Of course, this is exactly the function of the specialist on the New York Stock Exchange, an excellent example of successful contrarian investing.

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