Contrarian Investment Philosophy in the American Stock Market: On Investment Advice and the Crowd Conundrum

This paper contributes to the understanding of the role of crowds in the financial market by examining the historical origins and theoretical underpinnings of contrarian investment philosophy. Developed in non-scientific, practice-oriented ‘how to’ handbooks in 1920s and 1930s America, contrarian investment advice was aimed at so-called small investors rather than well-established market practitioners. Emerging out of late-nineteenth- and early-twentieth-century debates about public participation in the stock market, the contrarians expanded on a widely held (amongst financial writers) scepticism about the investment and speculation skills (or lack thereof) of the masses and adopted ideas from the theoretical discipline of crowd psychology, whereby they positioned the mass (i.e. the crowd) in opposition to the successful investor. I argue that despite its idiosyncrasies, the contrarians’ conception of the market based on crowd psychology points to a fundamental fragility of market participants, which still lingers on in recent debates about the wisdom of financial market crowds.