RULES FOR CONTARARIAN INVESTING

• Rule 1: Do not use market-timing or technical analysis. These techniques can only cost you money

• Rule 2: Respect the difficulty of working with a mass of information. Few of us can use it successfully. In-depth information does not translate into in-depth profits.

• Rule 3: Don't make an investment decision based on correlations. All correlations in the market, whether real or illusory, will shift and soon disappear.

• Rule 4: Tread carefully with current investment methods. Our limitations in processing complex information correctly prevent their successful use by most of us.

• Rule 5: There are no highly predictable industries in which you can count on analysts' forecasts. Relying on these estimates will lead to trouble

• Rule 6: It is impossible, in a dynamic economy with consistently changing political, economic, industrial, and competitive conditions, to use the past to estimate the future

• Rule 7: Be realistic about the downside of an investment, recognizing our human tendency to be both overly optimistic and overly confident. Expect the worst to be much more severe than your original projection

. Rule 8: Take advantage of the high rate of analyst forecast error by simply investing in out-of-favor stocks.

• Rule 9:
• Surprises, as a group, improve the performance of out-of-favor stocks, while impairing the performance of favorites.
• Positive surprises result in major appreciation for out-of-favor stocks, while having minimum impact on favorites.
• Negative surprises result in major drops in the price of favorites, while having virtually no impact on out-of-favor stocks.
• The effect of earnings surprises continues for an extended period of time.

• Rule 10: Favored stocks underperform the market, while out-of-favor companies outperform the market, but the reappraisal often happens slowly, even glacially.

• Rule 14: Buy solid companies currently out of market favor, as measured by their low price-to-earnings, price-to-cash flow or priceto-book value ratios, or by their high yields.

• Rule 11: Don't speculate on high priced concept stocks to make above-average returns. The blue-chip stocks that widows and orphans traditionally choose are equally valuable for the more aggressive businessman or –woman

• Rule 12: Avoid unnecessary trading. The costs can significantly lower your returns over time. Low price-to-value strategies provide well above market returns for years, and are an excellent means of eliminating excessive transaction costs

• Rule 13: Buy only contrarian stocks because of their superior performance characteristics.

• Rule 14: Sell a stock when its PER (or other contrarian indicator) approaches that of the overall market, regardless of how favorable prospects may appear. Replace it with another contrarian stock.

• Rule 15: Look beyond obvious similarities between a current investment situation and one that appears equivalent in the past. Consider other important factors that may result in a markedly different outcome.

• Rule 16: Don't be influenced by the short-term record of a money manager, broker, analyst, or adviser, no matter how impressive; don't accept easy cursory economic or investment news without significant substantiation.

• Rule 17: Don't expect the strategy you adopt will prove a quick success in the market, give it a reasonable time to work out.

• Rule 18: Political and financial crises lead investors to sell stocks. This is precisely the wrong reaction. Buy during a panic, don't sell.

• Rule 19: In a crisis, carefully analyze the reasons put forward to support lower stock prices - more often than not they will disintegrate under scrutiny