Famous contrarians and their strategies
Contrarian investing has been shaped and refined by a small but influential group of investors who consistently challenged consensus thinking. Among them, Sir John Templeton, David Dreman and Seth Klarman stand out not only for their long-term performance, but also for their disciplined application of contrarian principles across market cycles.
Their strategies were built on deep analysis, emotional control and a willingness to act decisively when markets were at their most irrational. Each approached contrarianism in a distinct way, yet all shared a belief that value is most often found in areas the crowd avoids.
SIR JOHN TEMPLETON: BUYING AT THE POINT OF MAXIMUM PESSIMISM
John Templeton is widely considered one of the founding figures of global contrarian investing. His most famous strategy – buying at the point of maximum pessimism – was rooted in the idea that investor fear often creates deeply undervalued opportunities. Templeton believed that markets are driven as much by psychology as they are by fundamentals and that the best buying opportunities arise when negative sentiment peaks.
Templeton's career began with a striking example of contrarian thinking. In 1939, as war engulfed Europe, he instructed his broker to buy $100 worth of every US-listed stock trading below $1, including dozens on the brink of bankruptcy. Despite the obvious risks, he reasoned that fear had pushed valuations to irrational lows. The result was a substantial profit, which helped launch the Templeton Growth fund and shaped his lifelong investment approach.
Throughout his career, Templeton emphasised global diversification, often investing in countries and sectors overlooked by US investors. In the 1960s and 70s, when US markets dominated attention, he sought value in Japan and emerging economies. He was early to recognise the long-term potential of international equities, frequently buying in regions affected by political instability or economic crisis, always with the same principle: when others are fearful, opportunities multiply.
Templeton maintained a rigorous valuation discipline and avoided chasing trends. He often sold into strength, taking profits when optimism returned and the market caught up with his thesis. His success demonstrated that a patient, unemotional approach – anchored in valuation and guided by sentiment – can yield strong results over time.
DAVID DREMAN: SYSTEMATIC CONTRARIAN VALUE
David Dreman brought a more structured, research-driven perspective to contrarian investing. A pioneer in behavioural finance, Dreman sought to quantify the psychological patterns that lead to market inefficiencies. His work laid the groundwork for a systematic approach to contrarian value investing, centred on the premise that investors consistently overreact to news, creating opportunities in low-expectation stocks.
Dreman’s strategy focused on companies with low price-to-earnings (P/E), price-to-book (P/B) and price-to-cash-flow (P/CF) ratios. These metrics served as proxies for negative sentiment, often reflecting a lack of investor interest or active avoidance due to recent underperformance. Rather than avoiding such companies, Dreman’s research showed that they frequently outperformed their high-expectation peers over the long term. The reason, he argued, lies in behavioural bias: investors overestimate the prospects of glamorous stocks and underestimate the resilience of unpopular ones.
One of Dreman’s key insights was that earnings surprises had a disproportionate impact on low-expectation stocks. When a deeply discounted company reported better-than-expected results, the price reaction tended to be stronger than that of a high-expectation stock delivering a similar surprise. This asymmetry, he argued, was a persistent and exploitable feature of market psychology.
Dreman was also vocal about the dangers of consensus thinking. He warned that analysts and fund managers, influenced by group dynamics and performance pressures, often converged on similar positions. By actively avoiding these crowded trades, he sought to build portfolios that were not only undervalued but also less correlated with market trends.
Although his methods were more mechanical than those of Templeton or Seth Klarman, Dreman’s philosophy was rooted in the same conviction: that investor emotions routinely distort prices and that consistent application of a contrarian lens can uncover superior opportunities.
SETH KLARMAN: DEEP VALUE AND CAPITAL PRESERVATION
Seth Klarman is one of the most respected value investors of the modern era, known for his disciplined approach and deep commitment to capital preservation. As the founder of the Baupost Group, Klarman applied contrarian principles in a highly selective and risk-conscious manner. His philosophy combines elements of Benjamin Graham’s value investing with a strong emphasis on behavioural inefficiencies, making him a natural contrarian.
Klarman is perhaps best known for his 1991 book Margin of Safety, which outlines his investment framework in detail. At the heart of this framework is the belief that markets are inefficient and that patient, well-informed investors can find mispriced assets by looking where others are unwilling to go. He often focused on distressed securities, spin-offs and other special situations that attracted little institutional interest. These investments were frequently complex and illiquid, but offered significant upside when market sentiment reversed.
Unlike momentum-driven strategies, Klarman’s approach is inherently long-term. He prioritised downside protection and was willing to hold large cash positions when opportunities were scarce – a stance that often placed him at odds with market cycles. During periods of exuberance, Klarman reduced exposure and waited. During crises, he deployed capital quickly into areas abandoned by others.
Klarman’s contrarianism was not about opposition for its own sake. Instead, he emphasised the importance of thorough analysis, conservative assumptions and emotional discipline. He recognised that the market’s short-term reactions were often driven by fear, greed and the desire for immediate results. By ignoring the noise and focusing on long-term value, he consistently delivered strong returns without chasing performance.
His willingness to act decisively during market dislocations was particularly evident during the 2008 financial crisis. While many investors retreated, Klarman increased exposure to distressed debt and undervalued equities, capitalising on the forced selling that defined the period.
COMMON THREADS AMONG CONTRARIAN INVESTORS
While Templeton, Dreman and Klarman differed in their methods and markets, they shared several core beliefs. All three understood that investor psychology drives price extremes. Each maintained a clear framework for identifying value and ignored consensus thinking in favour of independent analysis. They also accepted that contrarian positions often entail short-term underperformance, requiring patience and conviction.
Importantly, none treated contrarianism as a gimmick. Their strategies were not based on blind opposition to the crowd, but on a consistent application of logic and evidence where others were governed by emotion. Their legacies offer a clear lesson: successful contrarian investing is not about being different – it is about being right when it matters most, often by seeing value where others see only risk.
To learn more about contrarian investing, visit Orbis Investments' Contrarian Investing Playbook.
This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.