Investing is a complex art and successfully outperforming the market is far from easy. One thing that's certainly true of investing however is that if you can consistently buy low and sell high, you'll do alright!
Amazingly even the simplicity of this buy low-sell high concept is difficult to perform in practice. One of the explanations for this is that is goes against human nature to buy something which appears ugly, out-of-favour, unwanted and disliked by the majority of investors. In comparison buying what is loved, popular and trendy is much easier and perceived to be much 'safer'.
The problem with buying what the rest of the share market crowd is also buying is that often this can lead to paying a very full price or indeed paying well-over fair value for a stock. In the long run relying on someone paying an even more expensive price is a dangerous plan. Many of the most successful investors instead buy where no-one else is buying and sometimes, on a very careful and selective basis, what others are selling.
Here are three stocks which are currently out-of-favour with the 'crowd'.
1) Acrux Limited (ASX: ACR) – The share price of this biotech has plunged from a high of $3.85 in the past 12-months to just 80 cents today. The cause of the fall has been issues surrounding the U.S. testosterone replacement therapy market which is a key market for one of Acrux's leading products.
2) Fantastic Holdings Limited (ASX: FAN) – The share price of the furniture retailer and wholesaler has plunged to a decade low due to a retailing environment that Fantastic is struggling with. At the recent interim results the company reported a 6.2% decline in like-for-like sales and a 63.8% drop in profit.
3) Western Desert Resources Ltd (ASX: WDR) – Exposure to the plunging iron ore price is tough even on mining giant Fortescue Metals Group Limited (ASX: FMG) so it's easy to imagine how tough the small Western Desert Resources is finding it. Adding to the difficult pricing environment, is the fact that Western Desert has only recently entered the production phase and is still perfecting its freight and logistics process.