Wm. Morrison Supermarkets Plc, Neil Woodford And The Art Of Contrarianism

You better believe it – contrarianism is back, in the form of Wm. Morrison Supermarkets plc (LON:MRW).

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Can you have a fashion for contrarian investing? It seems to be a contradiction in terms, and in a way it is. But if there ever was a buzz for contrarian investing, it is now.

The thing is, contrarianism runs contrary to the nature of most people (by definition). However much our rational minds try to be contrarian, our sub-conscious — our ‘inner chimp’ — rebels fiercely against it. And if you believe, like me, that investing is really all about psychology, that explains why — however much we shout out about the importance of being contrarian — so few people are able to be really good contrarian investors.

The simple truth is that there are so many ways to get contrarianism right, but there are just as many ways to get it wrong.

Buffett and Kipling

After all, hasn’t Warren Buffett been advocating being ‘greedy when others are fearful, and fearful when others are greedy’ for decades? But has this changed investor behaviour? Of course not — most people still buy high and sell low.

But if you can, despite everything, control that ‘inner chimp’, and you are able to buy when everyone else is selling, you are able to plunge in when everyone else is running a mile, then, as Rudyard Kipling would put it, yours is the Earth and everything that’s in it.

2012, which was a year of recovery after the horrors of 2011, proved to be a great year for contrarian investing. In 2013 we see something unfamiliar to new investors: a raging bull market. As the market forges ahead, will contrarianism still work well?

Contrarianism in a new bull market

In many ways, investing in a bull market is easier than investing in a market that is floating in the doldrums. More shares rise than fall, and most canny investors make money.

I believe that contrarianism works well in this environment. But I would combine it with a focus on good-value blue chip companies. Like an example? Take a trade by one of the new masters of contrarianism: Neil Woodford.

A few months ago, he bought shares in supermarket group Morrisons (LSE: MRW). At the time the share price had slumped, as investors feared the company was wilting in a hugely competitive market.

But since then Morrisons has figured out a turnaround strategy that has convinced investors, and the shares are already surging ahead. It has identified its weak points, and is working hard to improve them: it is investing in smaller town-centre stores, in improving its presence in the south of the country, and also in its online offer, as evidenced by its recent deal with Ocado. If it can make real progress in these areas, the potential for growth — and thus for upside in its shares — is fantastic.

In my mind, this is a great way to invest: you choose a robust blue-chip company. It is in a growing industry (supermarkets). It is out of favour and thus cheap, yet there is a decent chance of recovery. This is the essence of contrarianism — and it really works.

Free report

There is much we can learn from Woodford’s investments. His ability to achieve market-beating returns over a decade when the stock market has been moving sideways is impressive. Want to learn more about his latest investments? Then just read this free report, “The FTSE100 Shares That Britain’s Super-Investor Owns”.

> Prabhat owns shares in Morrisons. The Motley Fool has recommended shares in Morrisons.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

7%+ dividend yields! Here are 2 of the best UK shares to consider buying in June

This Fool has been searching for UK shares with the best dividend yields. Here are two he thinks investors should…

Read more »

Investing Articles

5 FTSE 100 shares to consider buying for passive income right now

The FTSE 100 is having its best start to the year for ages, and that's pushing the top dividend yields…

Read more »

Investing Articles

One overlooked cheap share to tap into the year’s hottest theme?

This Fool describes the key things to think about when investing in copper stocks and analyses one cheap share to…

Read more »

Investing Articles

A cheap FTSE 100 stock that’s ready for a dividend hike in 2024

This banking giant is one of the FTSE 100's greatest dividend stocks. And at current prices, our writer Royston Wild…

Read more »

Growth Shares

Is the BP share price set to soar after Michael Burry invests in the firm?

Jon Smith takes note of a recent purchase from the famous investor behind The Big Short and explains his view…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

I’d focus on Kingfisher now after the Q1 report leaves the share price unmoved

With the share price near 262p, is the FTSE 100’s Kingfisher a decent investment now for dividends and business recovery?

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£500 buys me 493 shares in this 7.4% yielding dividend stock!

The renewable energy sector remains out of favour. As a result, there are some high-yielders around, including this dividend stock.

Read more »

Road trip. Father and son travelling together by car
Investing Articles

If I’d put £10k into Tesla stock 2 years ago, here’s what I’d have now

Tesla stock has fallen in the past few years. But the valuation looks temptingly low now, as we approach a…

Read more »