The Gold Report: Rick Rule talks a lot about how much money can be made investing in things people hate, or at least don’t like very much. Throughout the first quarter of this year, natural resources as a whole seemed to be in that category. How do you create a successful investing strategy out of a contrarian philosophy?
Paul Wong: First, it takes a lot of patience to be contrarian. You also need to have a lot of discipline. Probably more important than anything else, you need sticky investors. That’s the hardest thing to get on the planet right now, an investor willing to stick it out.
Contrarian investors have to have the stomach to buy when the market is in the midst of a violent selloff, and they have to have the wherewithal to ride the volatility of the storm. That’s the patience and the discipline part. Successful bottomfishing investors have to be able to discern the fine line between a company that could rally hard after a down leg and one that is on the verge of going bankrupt. You can throw luck into the requirements for being a contrarian investor as well, but at the end of the day it is a challenging way to approach building a portfolio so it is a good thing it sometimes pays off so dramatically.
Mutual funds aren’t traditionally built to be contrarian. I remember a joke I learned when I was a junior portfolio manager. I mentioned to someone that a stock could be a great investment in three or five years’ time, and the fellow shot back to me, “Yes, my successor will look quite brilliant when that happens.” That’s the problem with long-term, contrarian-type investments. …read more