If you’re a fan of Todd Harrison’s Minyanville, you’ll recognize the title of my Blog. ContraHour refers to the hour before the market closes (2 – 3 pm) when the market often does the opposite of what it will do going into the close. If Todd Harrison didn’t coin the phrase, he certainly popularized it.
I’m a big fan of Todd Harrison because he’s one of the few traders that teaches to “buy down and sell up”. Countless trading sites give you the daily breakouts or breakdowns. Almost every technical analysis book I’ve read lists pages upon pages of beautiful breakout charts in which the stock subsequently rises 10 fold over the next day, month, year, whatever.
However, if you’ve ever traded in this fashion – always buying stocks that have just broken out or selling stocks that have just broken down – you’ll quickly find that it ends up costing a lot of money.
Not that it’s not a valid strategy…unlike many value-oriented investors and money managers whom I know, I love stocks that go up. But for every one stock that breaks out at $10 and goes to $50, fifty stocks break out at $10 and end up right back at $9. After adding in commissions and slippage, “buying up” is a very difficult way to make money.
Which brings me back to the name of my blog – ContraHour. The name is partially a tribute to Todd Harrison for his excellent educational website “Minyanville.” Like Todd, I buy stocks that are down. I buy down because that is the only way I have found to generate alpha. Unlike Todd, I do it from an investing standpoint, not a trading standpoint.
My forte is buying 1) broken growth stocks that have been beaten down but have already shown some aptitude in turning around; 2) buying growth stocks that have yet to be discovered or 3) buying deep value stocks that most investors have given up on but are showing signs of coming back to life.
And as Todd Harrison teaches, I believe there are four legs to the investment table – fundamentals, technicals, sentiment, and structural. I want investments where all or most of those elements are lining up in my favor. The huge proliferation of Internet investment advisers has been quite staggering and many sites provide excellent analysis of one of the “legs”. However, none of them are good at putting all the parts together into a coherent whole. I believe that today’s markets are so competitive and difficult to navigate that you must have an understanding of all parts to make money consistently, over a long period of time. Therefore, while I’m largely a "bottoms-up" investor, I keep a close eye on the macro picture. In other words, I don’t buy stocks in a vacuum – I try to formulate large picture themes and fit stocks into my framework.
Finally, I named the blog ContraHour because I don’t sit around thinking about the end of the world and how to profit from its downfall (a la www.GloomBoomDoom.com). And while I’m a contrarian, I don’t ever want to take investment positions so far off the map that no one will ever discover them (penny and micro cap stocks). I do spend part of the day trying to understand conventional thinking and how or why it could be wrong. And I’m trying to find ideas that aren’t yet in the mind of the conventional investor. Hence, I would describe my investment style as being “rational contrarian” – investment ideas that are at the cusp of moving higher but aren’t so popular yet that investment clubs are asking me my opinion on the idea.
Anyway, welcome to the ContraHour.