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Why it Pays to be a Contrarian

In his famous poem, Robert Frost declared that he preferred to take “the road less travelled by.” I take that idea not only as a useful philosophy for life, but also as an even better guide for business.

When I began to buy and sell commercial real estate in 1968 I was told that the market had been weak for years, and I was foolish to even consider that kind of investment.

Luckily, my father raised me to be a contrarian.

I smiled and began to invest. The market soon improved dramatically. Since that time, I’ve continued to follow my father’s advice and grown my business into a billion dollar company.

“If everyone is buying, then sell,” he used to say. “If everyone is selling, then it’s time to buy.” He once called his stockbroker, Carr Neel Miller, and asked for his company’s research on the First Charter Financial Corporation. Mr. Miller said, “Fred, the Savings and Loan industry is so shaky that E. F. Hutton & Co. doesn’t even follow it. We have no research.”

My father smiled and bought 4,000 shares of First Charter Financial at $7.00 a share. Four years later, when brokerage houses were heartily recommending the stock, my dad sold First Charter at $28.00 a share. That’s a profit of 300 percent in four years.

It pays to be a contrarian.

Of course, being a contrarian doesn’t mean you always go against the grain. You have to be selective. But being a contrarian means that you are always willing to QUESTION your direction, especially when everyone else seems to be floating with the current.

[wcm_restrict]Take for example the financial crisis of 2008. During that period, most people were transfixed by the seemingly unlimited growth potential in the derivatives market. Financial analysts, including some of my own, were encouraging more and more investment.

But my father taught me well, and I decided to take the road less travelled.

Where others saw an economic boom, I saw only the exponential risk of some $500 trillion in promises that banks and insurers didn’t have the reserves to keep. I sold my stakes in the securities market in the spring of 2008, and breathed a huge sigh of relief that fall when I avoided, unlike most, losing my shirt.

A number of my employees approached me after the bust.

“Our 401K has lost 40 per cent of its value. We’re going to sell.”

“It’s a great time to buy,” I said. I hope they did. They would have earned a profit of 66 per cent on their investment when the market regained its original value about four years later.

History shows time again that after a boom or bust majority is almost always wrong. And while it can be scary to swim against the tide, those who do generally benefit greatly. The best stock investor of our time, Warren Buffet, has been reported to say, “When others get greedy, I get scared. When others get scared, I get greedy.”

In business, and life itself, the future is unpredictable. Whether it’s Lehmann Brothers filing for bankruptcy, the introduction of a new technology, or a change of government regimes in sixteen different countries, change is inevitable. And it is the contrarians among us that will benefit from, rather than be harmed by, that change.

So I say be prepared. Look around and figure out in which direction the tide is flowing. Then dare to be a contrarian–in business and, perhaps, in life. Try taking, as Robert Frost suggests, “the road less travelled.” It could, indeed, make all the difference.[/wcm_restrict][wcm_nonmember]


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About the Author

Alan Fox is the president of ACF Property Management, Inc, and author of The New York Times bestseller PEOPLE TOOLS: 54 Strategies for Building Relationships, Creating Joy, and Embracing Prosperity. He has university degrees in accounting, law, education, and professional writing. He was employed as a Tax Supervisor for a national CPA firm, established his own law firm, then founded a commercial real estate company in 1968 that now owns over one billion dollars in real estate. Fox is the founder, editor, and publisher of Rattle, one of the most respected literary magazines in the United States, and he sits on the board of directors of several non-profit foundations. Visit www.peopletoolsbook.com.

Evaluation and Control Program Best Practice 3 – Assess the Good, the Bad, and the Ugly

Don’t throw the baby out with the bath water.

Thomas Murner (1475 – 1537)
German satirist and poet
Author of Appeal to Fools

Many business professionals almost singularly focused on identifying and fixing ‘the ugly’ – shortcomings that result in their organization’s most adverse outcomes. This focus is understandable as extremely poor performance can cause irreparable damage. The approach, however, omits critical examination of a range of organizational performance, ‘the good’ and ‘the bad;’ placing the organization at risk of achieving only suboptimal performance.[wcm_restrict plans=”41273, 25542, 25653″]

What is good, bad, and ugly performance?

The good, the bad, and the ugly represent a range of organizational performance. Performance not included by these three characterizations are those commonly expected behaviors driving neither exceptionally strong nor poor performance such as showing up to work on time.

  • The Good: those deliberate behaviors resulting in highly positive business outcomes
  • The Bad: traditions no longer yielding exceptional or even positive results that go protected because of an organizational unwillingness to change or even challenge these actions
  • The Ugly: intentional and unintentional actions driving undesirable results that must be stopped so to prevent adverse outcome recurrence

Why evaluate positive outcomes?

Assessing positive outcomes often appears to be a waste of precious time… or is it? A lot can be learned from the study of positive outcomes including:

  • Was the outcome the result of luck or deliberate action? We’ll take luck but it cannot be counted upon. Deliberate actions can be repeated. These should be recognized, documented, and trained on so they can be repeated.
  • Were the positive results achieved driven by your actions or the failed attempts of others? Sometimes it’s not a matter of winning, it’s that the other team loses.
  • Can the good actions drive positive outcomes in other areas? If so, they should be broadly communicated and practiced.
  • Who or what group contributed to the desired results? These individuals should be recognized and rewarded to promote continuation of the exhibited behaviors.

It is important to look for the good even when assessing the bad and the ugly so as to not eliminate the performance of desired behaviors when correcting the performance resulting in adverse outcomes.

What’s wrong with the bad?

The bad can be deadly for an organization. When these ‘900 pound guerillas’ go unchallenged, they stifle a business’s growth; providing innovative competitors an opportunity to seize market share. Examples of such destruction include Compaq, Kmart, and Zenith.

StrategyDriven has long advocated the use of a ‘Devil’s Advocate.’ (See StrategyDriven article, advocatus diaboli, The Devil’s Advocate) We also recommend the employment of these principles when evaluating overall organizational performance. It is the expressed role of this individual to challenge the organization’s sacred cows.

Long-term practices and commonly held beliefs to be challenged are characterized by:

  • Activities receiving whispered decent but not open challenge
  • Undocumented but measurable practices
  • Approaches uncommon elsewhere within the organization’s industry or general marketplace
  • Drivers of outcomes that are seemingly incongruent with societal norms

Some sacred cows drive the organization’s success. This good should be acknowledged. However, portions of these practices may be outdated so even the best practices might need adjustment.

Evaluating the ugly goes without saying…

Of course an evaluation program must assess adverse outcomes and underperformances. Recurrence of negative outcomes needs to be prevented and lagging performance improved if the organization is to achieve long-term success. High-risk programs, those that could result in ugly outcomes, should also be evaluated to minimize the chance of realizing undesirable events. (See StrategyDriven article, Integrated Risk Assurance Oversight Matrix)[/wcm_restrict][wcm_nonmember plans=”41273, 25542, 25653″]


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StrategyDriven Podcast Episode 14 – The Devil’s Advocate

StrategyDriven Podcasts focus on the tools and techniques executives and managers can use to improve their organization’s alignment and accountability to ultimately achieve superior results. These podcasts elaborate on the best practice and warning flag articles on the StrategyDriven website.

Episode 14 – The Devil’s Advocate elaborates on Strategic Analysis Best Practice 2 – advocatus diaboli, The Devil’s Advocate. This discussion:

  • defines what a Devil’s Advocate is
  • explains how the contrarian helps prevent group think
  • describes the critical qualities, responsibilities, and actions of the Devil’s Advocate

Strategic Analysis Best Practice 2 – advocatus diaboli, The Devil’s Advocate

StrategyDriven Strategic Analysis ArticleShared experience, organizational pride, and/or conflict avoidance can diminish the criticality of data and conclusion assessment; leading to exaggerated optimism and resulting in an organizational pursuit of unrealistic goals. Inflated expectations may drive investment in projects well outside of the organization’s risk tolerance. In today’s aggressive marketplace and under intense shareholder scrutiny, missteps like these can be disastrous for a company and its executive team.[wcm_restrict plans=”40713, 25542, 25653″]

Employing a Devil’s Advocate throughout the assessment and decision-making processes helps prevent the unintended consequences of group-think. As a contrarian, the Devil’s Advocate deliberately assumes a position opposed to the consensus viewpoint. He or she actively seeks opportunities to discredit supporting information and challenge seemingly logical conclusions. By attacking the group’s position, the Devil’s Advocate demands a rigorous defense be presented by the evaluating group; ultimately strengthening the final decision.

The Devil’s Advocate is itself a challenging position to fill. Some organizations have one or more individuals who naturally assume this role. For those not having a resident skeptic, the position of Devil’s Advocate can be assigned on a rotational basis in order to share the wealth. In either case, the contrarian qualities of critical thinking and questioning attitude are worthy of development in all managers and executives.

Additional Information

Additional information regarding strategic analysis can be found in the StrategyDriven whitepaper series Strategic Planning[/wcm_restrict][wcm_nonmember plans=”40713, 25542, 25653″]


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About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.