Contrarian Investing By Anthony M. Gallela & William Patalon III

The Buy Rules

• Initial Trigger: "Down-By-Half Rule"

This means that the stock has to be down by at least 50% from its 52-week high

• Confirming Indicators:

1. Major stock purchases by insider or knowledgable outsiders
2. Must meet at least 2 of the following 4 fundamental analysis indicators

* Trailing Price/Earning (P/E) < 12
* Price/Free Cash FLow (P/FCF) < 10
* Price/Book (P/B) < 1
* Price/Sales (P/S) < 1

• Additional minor rules:

1. Stock must be at least $5 per share (US market)
2. Companies with large market capitalization > $150 million (US market)
3. Change of top management in a company with problems is a positive sign
4. "One-timers". Stock which have strong fundamentals but is beaten down by a one-time event (such as accident or adjustment for obsolete inventory)

The Sell Rules

• Put in a 25% "Stop Loss" Order
• Sell after a 50% Gain or 3 Yrs whichever is earlier
• Exception to the 50% Rule if the upside is clear. Move Stop Loss to 30% Gain Mark

The Risk Diversification RuleOut of the 100% Portfolio:

1. 5% Purchase for each stock
2. 20% holding for each Industry

The book Contrarian Investing is available at Amazon.