Contra Funds has its genesis in the popular saying "when others zig you zag".
- It basically takes contrasting positions and consciously does not flow with tide at all times.
- Let me tell you a story.
- There was a boy Raju travelling with his family. They met with an accident in which he lost all his family members. He became orphaned. His relatives turned away from him.
- Raman a friend of Raju's father who knew the family was very fond of Raju.He liked him because he was cultured, well mannered, very studious and always a topper in his class. He knew Raju had the talent to became a very successful person.
- He therefore without any hesitation took Raju under his shelter. He nurtured and educated him sparing no efforts. As expected Raju grew up into a very smart, intelligent and successful person.
- When Raman started aging and becoming weak, it was Raju who stood by him as his shield. He ensured that Raman had all the comforts that he needed.
- From a "contra" perspective one can say that the bet Raman took on Raju was a contra bet. He backed him at a time when others were avoiding him. He did it because he had a clearer understanding of the intrinsic qualities of the boys. He always knew it would be worth his while to help Raju in the long term.
- Similarly a "Contra" fund manager looks for a bad news and searches for opportunities within the bad news. He identifies companies being shunned by investors due to overall mood and picks them into his "Contra" basket.
- And as we saw in the case of Raju, such companies also may take some time to bounce back. Therefore as an investor one needs to have patience when investing in a contra theme.
This is what contra funds are. Remember, it takes patience for the investment to play out.
- It basically takes contrasting positions and consciously does not flow with tide at all times.
- Let me tell you a story.
- There was a boy Raju travelling with his family. They met with an accident in which he lost all his family members. He became orphaned. His relatives turned away from him.
- Raman a friend of Raju's father who knew the family was very fond of Raju.He liked him because he was cultured, well mannered, very studious and always a topper in his class. He knew Raju had the talent to became a very successful person.
- He therefore without any hesitation took Raju under his shelter. He nurtured and educated him sparing no efforts. As expected Raju grew up into a very smart, intelligent and successful person.
- When Raman started aging and becoming weak, it was Raju who stood by him as his shield. He ensured that Raman had all the comforts that he needed.
- From a "contra" perspective one can say that the bet Raman took on Raju was a contra bet. He backed him at a time when others were avoiding him. He did it because he had a clearer understanding of the intrinsic qualities of the boys. He always knew it would be worth his while to help Raju in the long term.
- Similarly a "Contra" fund manager looks for a bad news and searches for opportunities within the bad news. He identifies companies being shunned by investors due to overall mood and picks them into his "Contra" basket.
- And as we saw in the case of Raju, such companies also may take some time to bounce back. Therefore as an investor one needs to have patience when investing in a contra theme.
This is what contra funds are. Remember, it takes patience for the investment to play out.
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