The Career Risk of Being Contrarian

“The defining characteristic of the modern professional investor is that he manages someone else’s money. For such a professional, going against the sentiments of Mr. Market often means going against the sentiments of his clients. If he makes a contrarian bet, and it doesn’t pay off quickly, he might be in big trouble. Justin Fox (The Myth of the Rational Market)

This quote perfectly summarizes the “career risk” that is the primary driver behind modern investment behavior which Jeremy Grantham so eloquently explained in his most recent quarterly letter. The piece entitled “Is it Time to Cut Back on Apple?” in the Wall Street Journal over the weekend offered some surprisingly honest examples of this investment behavior in modern practice:

Mark Mulholland, the portfolio manager of the Matthew 25 fund, says having a 17% stake in a single company isn’t abnormal for the fund, which owns 19 stocks. Because Apple has been so strong it would be “more risky not to have a heavy position,” he says.”

Just a guess on my part (well, not really….) but some of the recent weakness in $AAPL shares probably has a lot do with portfolio managers like the one above rethinking the prudence of holding such concentrated positions in a stock which had been up over 50% since the beginning of the year.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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