This Is the Age of the Contrarian

LONDON -- Who was the original contrarian? Perhaps it was Baron Rothschild, an 18th-century British nobleman and member of the illustrious banking family, who is credited with saying "The time to buy is when there's blood in the streets."

He should know. Rothschild made a mint buying in the panic that followed the Battle of Waterloo against Napoleon. In fact, the original quote is even more revealing: "Buy when there's blood on the streets, even if the blood is your own." This is the essence of contrarianism: When things are looking awful, when it seems the sky is falling in, when everyone is suffering (including yourself) -- that is the time to buy.

I think now is one of those times. Everywhere you look, from a Europe that stumbles from crisis to crisis, to a China that many fear is suffering a hard landing, to a Britain mired in a slump that is drawing everyone in like quicksand, times are hard. Suggest to the man in the street that he should invest in shares and he will, most likely, run a mile in the opposite direction. We may not quite be at the time of maximum pessimism, but I think we are not far off it.

For contrarian investors such as I, all this is great news. I love to go against the grain, to pick up those bargains that everyone else has neglected, and to see what the crowd is studiously avoiding. And at the moment, there are contrarian opportunities galore. Here is my pick of some of the best.

This is the epicenter of the current financial earthquake. As such, perhaps some of the greatest bargains can be found here.

A range of companies have single-digit P/E ratios and juicy dividends. For example, Italian oil major ENI (NYS: E) , at its current price of 16 euro, is on a P/E ratio of seven and has a dividend yield of 5%. Perhaps an even better bargain is fast-growing German premium automaker BMW, which at its current price of 56 euro is, amazingly, on a P/E ratio of 6.6 and a dividend yield of 3%.

If you prefer the funds route, you could try Jupiter European Opportunities or Henderson European Focus Trust (ISE: HEFT.L) ; the latter trades at a hefty 17% discount to its net asset value and yields 3.5%. And for fans of trackers there is the Vanguard FTSE Developed Europe ex-UK Fund, which has a total expense ratio of just 0.25%.

It is hard to say anything positive about Japan. Whenever investors discuss the country, the talk is full of negativity. People say that Japan is a country whose time has passed. It is a land that faces a future of steady decline. Japan's position as the world's technological whizz-kid is currently being usurped by South Korea -- and China, too, may catch up.

And yet Japan is one of the few markets in the world that trades below book value. In fact, I believe the stock market is the cheapest it has been for more than 30 years. And the Japanese remain some of the most industrious and inventive people on earth. You could argue that Japan is the most contrarian of contrarian plays right now.

Plus, you would be wrong to say there is no place in the world for a mature markets manufacturer. After all, Germany, euro worries aside, remains hugely successful. But I think Japan really does need to reinvent itself.

If you believe Japan can turn itself around, then I would suggest buying a low-cost tracker such as the HSBC Japan Index, which has a total expense ratio of 0.29%.

The U.K.
If you don't wish to venture abroad, there are plenty more contrarian opportunities closer to home.

Financials remain bruised and beaten-up after the latest eurozone ructions, even though many banks and insurers remain hugely profitable, and I am thinking seriously of adding to my already extensive portfolio of financials. Barclays and Aviva in particular, look attractive to me.

Recently, resources companies have also taken a bit of a battering, and companies such as BP now look enticingly cheap.

If the thought of being a contrarian investor appeals to you, then why don't you read about the man who I think is one of the world's greatest contrarian investors. Learn all about his favorite holdings in "8 Shares Held By Britain's Super Investor."

Finally, what do you think is the best contrarian play around at the moment? Please sound off in the box below!

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Prabhat owns shares in Aviva and BP. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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