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Putting Your Money Where The Others Aren't

Investors who march to a different drummer don't always call themselves contrarians. "It implies you're kind of a crackpot," says Robert Torray, whose Bethesda (Md.) firm manages $1 billion. But Torray's strategy is the contrarian manifesto: "The best way to do well is to reverse the moves the rest of the people make."

Contrarians like to get into the market when the crowds are fleeing--thus depressing prices--and exit before the raging bulls slam into a wall. Veteran contrarians say the strategy is an automatic risk-reducer. By keeping away from what is fashionable, explains Jeremy Grantham of Grantham Mayo Van Otterloo, "you won't be buying horrendously overpriced art or real estate." Conversely, you're most likely to find real bargains among unpopular investments that high-profile analysts aren't following.

Even in times of high valuation, contrarians protect themselves by buying on the cheap (table). Vice-President Eric Hanson of Fraser Management Associates, which manages $80 million and publishes The Contrary Investor newsletter, points to IBM as a current example. Negative press and disappointing earnings have recently pushed the stock price as low as 99 3/4 from a 12-month high of 139 3/4.

Similarly, Mark Millsap of Meridian Management loaded up on Chrysler bonds just after they were downgraded. The fiscal bad news in New England, says Lauren Eastwood of Gabriele, Hueglin & Cashman, has made 15-year munis issued by the Commonwealth of Massachusetts a high-yield bargain. She also sees a regional rebound on the horizon.

So does Torray, who holds some controversial bank stocks, including Bank of Boston and Shawmut. Many contrarians agree that technology stocks, once considered a growth group, have joined the cyclical capital goods sector. Such battered issues as Digital Equipment, says Millsap, are good long-term buys.

Market timing is not the contrarian's bag. Torray tells his clients to think in blocks of three to five years or more. So portfolio turnover is usually lower than that of an aggressive growth fund.

That's why contrarians consider themselves "value investors," identifying with the likes of Berkshire Hathaway's Warren Buffett or the Windsor Fund's John Neff, famous for their independent thinking and long-term success. Torray says that in the 1990s, more investors will follow fundamentals rather than fads. If he's right, he won't be a contrarian any more.

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