How I Mix Evidence‑Based Investing With A Small Contrarian Portfolio

Most people should own broad, low‑cost index funds and stop there. The data are overwhelming: most active stock‑pickers underperform after fees and taxes.

I agree with that, and I still run a small, focused share portfolio on top of my index core.

This is how I make those two ideas live together without blowing myself up.

1. Core vs Edge: Where I Assume I Am Average (And Where I Don’t)

Core portfolio

• Globally diversified, low‑cost index funds.
• Purpose: to capture the simple fact that most stock markets go up most of the time, without effort, story‑telling, or cleverness. Here I assume I am completely average. My “edge” is just discipline and time.

Edge portfolio

• A small basket of individual shares: the few businesses I understand well, think are high quality, and believe I can buy at a discount to a conservative estimate of value.

In practice:

1. I assume I have no edge on at least 95% of the market. Index funds cover that.
2. I only pick shares where I can make a clear, written, disprovable case that:
   • I am inside my circle of competence, and
   • There is a specific edge (structural, behavioural, or informational) that is at least plausible.

If I cannot explain that edge in plain language, and then attack it myself, it goes in the index bucket, not the stock‑picking bucket.

2. What “Contrarian” Actually Means To Me

Being contrarian is not “buying whatever is down” or trying to outsmart the crowd every week.

For me it looks like this:

• Liking a business more when the price is lower and the fundamentals are better, not worse.
• Being willing to sit in an unpopular name through long stretches of boredom and drawdowns.
• Letting the business results be the anchor, not the share price or the latest narrative.
• Accepting that I might be wrong, and sizing positions so that being wrong is survivable.

A current example from my portfolio:
One of my positions is down 14% year to date. Since my initial purchase:

• Revenue has grown.
• Margins and the balance sheet have improved.
• Management has executed on the key parts of the original thesis.

The one thing that is worse is the share price.

So instead of selling or freezing, I added:

• The original thesis still makes sense on paper.
• The business is objectively better than when I first bought it.
• The market has given me a lower price on improved fundamentals.

If I was content to own it at the old price, it makes little sense to be scared now just because the quote is 14% lower and the business is stronger. That is what “contrarian” means to me: I react to changes in the business, not to changes in the quote.

3. When Being Contrarian Means Selling A Winner

Contrarian does not just mean “buy what is down”. Sometimes it means selling a beloved winner when most people expect the good times to carry on.

A recent example: I sold Novo Nordisk.

On paper, this is exactly the kind of share most investors want to hold for ever:

• It has compounded very well for a long time.
• The story is strong, the products are loved, and the narrative is optimistic.
• Many investors assume the past compounding will more or less continue.

I sold not because the share price was weak, but because my thesis broke in two specific places:

• Moat quality. I no longer believed the competitive advantage was as durable as the market was expecting. The risk of mean reversion in returns on capital felt under‑appreciated.
• Governance and incentives. I became less comfortable with the way management and governance were evolving versus my original expectations. For me, governance is part of the moat. If the incentives and decision‑making structure change, the moat can quietly erode long before it shows up in the numbers.

From the outside, selling a long‑term compounder like Novo Nordisk can look reckless. From my seat, keeping it would have been reckless, because:

1. My original edge (a clear view on moat and governance) was gone.
2. I would have been holding mostly because “it has done well and probably will keep doing well”, which is exactly the thinking I am trying to avoid.

So I did the contrarian thing: I sold a past winner that might very well keep doing well, because I no longer had a thesis I trusted.

4. Rules That Stop Me Lying To Myself

The biggest risk in a contrarian strategy is not the market, it is self‑deception. To reduce that, I use plain rules.

I only average down if:

1. The fundamentals are the same or better than at entry, and
2. The original thesis still makes sense when I force myself to rewrite it today, and
3. I can explain why the market might be mispricing it (for example: short‑term fear, forced selling, headline risk).

If the only “evidence” I have is that the price fell, I do not add. A lower price is interesting only if the business and balance sheet have not deteriorated in ways that break the thesis.

I sell when:

1. The thesis is broken (structural change, clear competitive erosion, governance or management failure, balance sheet deterioration), or
2. The share is no longer clearly discounted versus my conservative estimate of value, or
3. The position size is uncomfortably