Session 14: Value Investing - The Contrarians
from Aswath Damodaran Hosted by Aswath Damodaran
In this session, we look at buying stocks that have lost favor with the market, on the presumption that investors tend to over react to bad news. In particular, we look at two classes of contrarian investing. In the first, we examine the returns from buying the biggest losers in terms of stock prices over the previous year. While the overall evidence suggests that you can make significant returns from this strategy, we look at possible leakage from transactions costs and not having long enough time horizons. In the second, we evaluate whether you can generate positive returns from buying badly managed or poorly run companies, partly because the market has lowered expectations for these companies so much that it does not take much to beat these expectations.
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