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Stock Strategist

Morningstar's 2007 Contrarian Portfolio

We've found 10 stocks for investors who aren't afraid to go against the crowd.

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If your parents were like mine, you probably heard the following line many times growing up: "You wouldn't jump off a bridge just because everybody else was, would you?" As this bit of wisdom suggests, sometimes it makes sense to go against the crowd, because the crowd isn't always right. Contrarian investing follows this philosophy. Contrarians believe, in a variety of ways and for a variety of reasons, that the market often acts irrationally, thus leading to mispriced stocks. At Morningstar, we feel the same way, and for the past several years we have assembled a contrarian portfolio to test this theory.

Contrarian investing is a relatively broad term. There is no set-in-stone rule for exactly how to invest using this technique. Investopedia defines it as "An investment style that goes against prevailing market trends by buying assets that are performing poorly and then selling when they perform well." The thesis behind investing in these stocks is that, quite frequently, stock prices are beaten down for reasons that do not correspond with a firm's long-term earnings potential. However, we think that there is another potential stock universe for contrarian investing: stocks that are largely ignored by the market. Ignored stocks often represent a buying opportunity, because the market might not be paying enough attention to notice an attractive price.

Patrick O'Shaughnessy does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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