Understanding Contra Fund


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Understanding Contra Fund

  1. 1. Understanding the concept of “Contra” fund Contra fund has its genesis in the popular saying,”when others zig you zag”.
  2. 2. It basically takescontrasting positions and consciously does not flow with the tide at all times
  3. 3. Let me tell you a story. There was a boy Raju travelling with his family.They met with an accident in which he lost all his familymembers. He was an orphan. His relatives turned away from him.
  4. 4. Raman, a friend of Raju’s father who knew the family, was very fond of Raju. He liked him because he wascultured, well mannered, very studious and always a topperin his class. He knew Raju had the talent to become a very successful person
  5. 5. He took Raju under his shelter without any hesitation. He nurtured and educated himsparing no effort. As expected, Raju grew up into a very smart, intelligent and successful person
  6. 6. When Raman started aging and becoming weak it wasRaju who stood by him as his shield. He ensured that Raman had all the comforts that he needed.
  7. 7. From a “contra” perspective one can say that the bet Raman took on Raju was a contra bet. He backed him at a time when others were avoiding him. He did it because he had a clearerunderstanding of the intrinsic qualitiesof the boy. He always knew it would beworth his while to help Raju in the long term.
  8. 8. Similarly a “Contra” fund manager looks for bad newsand searches for opportunities within the bad news. He identifies companies being shunned by investors due to overall mood and picks them into his “contra” basket.
  9. 9. And as we saw in the case of Raju, such companies alsomay take some time to bounceback. Therefore, as an investor one needs to have patience when investing in a contra theme.
  10. 10. The tale of Raju pictorially isHelpless Raju after the accident Successful Raju once grown up
  11. 11. This was the story of “Contra”investment. Remember it takes patience for the investment to play out.
  12. 12. Hope you now understand the “contra” theme Please give us your feedback at professor@tataamc.com
  13. 13. DisclaimerThe views expressed in these lessons are for information purposes only and do not construe to be of any investment, legal or taxation advice. The contents are topical in nature & held true at the time of creation of the lesson. They are not indicative of future market trends, nor is Tata Asset Management Ltd. attempting to predict the same. Reprinting any part of this presentation will be at your own risk and Tata Asset Management Ltd. will not be liable for the consequences of any such action.Mutual Fund investments are subject to market risks, read all schemerelated documents carefully.