“In a world of change, the learners shall inherit the earth, while the learned shall find themselves perfectly suited for a world that no longer exists,” wrote Eric Hoffer.
"Pays to learn to think differently -- to be able to put on various thoughtful hats. To see what everyone sees, but notice what most missed."
Contrarian thinking has been around since the Stone Age and still flourishes in the age of Artificial Intelligence.
Great thinkers from ancient Greece - more than 2,400 years ago - like Socrates didn’t just accept things as they were, but instead asked, “What is truth?” He questioned everything and challenged ideas common in the streets of Athens. Being a contrarian means opposing or rejecting popular opinion.
Not just going with the flow, not taking the easy (programmed default) path of least resistance, and questioning conventional wisdom is contrarian thinking.
A contrarian investor will be buying, when others are selling. Instead of following the crowd, contrarians pause, reflect and think outside the box. Then, they begin to question the notion of a ‘box’.
High risk of being mistaken and ridiculed
Sounds great, but the catch is most contrarian thinking can be wrong. Somehow one has to cherry pick the bright insights or at least go through a quick low risk hypothesis-based testing process, to see what works and what doesn’t.
Contrarian thinkers are the outliers, taking risks, working beyond the bounds of the normal curve. World’s most affluent individual - with a net worth of $319 billion - is a contrarian thinker, often applying the ‘back to basics’ of the laws of physics ‘first principles’ thinking to solve problems at his flagship companies, SpaceX and Tesla.
But being the contrarian, Elon Musk, can have its dark disturbing side, causing needless and misguided disruption, when he has recently moved onto confusing stage of partisan politics.
Contrarians have shaped and continue to guide the course of history. Napoleon was known for his ambitious and often unorthodox leadership style. Martin Luther King Jr advocated for civil rights and challenged the established racial hierarchy of his time.
Nelson Mandela championed non-violence in fight against apartheid, demonstrating contrarian thinking by refusing to follow the prevailing pattern of racial violence.
Catering to ‘not the obvious’
In the business of investing, Charlie Munger was known for his contrarian approach to identifying undervalued assets and firms. George Soros is known for making bold bets against market trends, sometimes based on contrarian thinking. Steve Jobs led Apple, that was built on the idea of creating products that challenge the status quo, catering to the needs of a contrarian market.
We all make rational business decisions based on our learned mental models, combined with often irrational unconscious biases and prejudices.
A valuable skill is to notice when received ‘conventional wisdom’ may be missing something, as was the case in credit cards, and the creation of the disruptor bank: Capital One.
“It is precisely when wisdom becomes received that the opportunity for smart contrarianism arises. A good example is provided by Richard Fairbank, founder of Capital One, the company that disrupted the credit card industry.
Big banks like Citi, Bank of America, and Chase would issue cards to their existing customers and solicit new customers through direct mailing. Profits grew steadily.
Creditworthiness was assessed through debt/income ratios, credit scores, and interview scores. Applicants with overall scores above a certain point were offered credit cards on standard terms.”
“In the early 1980s, Fairbank was studying at Stanford, when he attended a presentation about the industry. The fact that everyone had the same price (same APR and annual fee) for credit cards in a risk-based business didn’t make sense to him, and he realised that higher-risk customers were being subsidised by lower risk ones.
In this situation a demographically targeted approach, with customized terms, would, in principle, generate a more efficient return. The business he created on the back of this insight was Capital One, which quickly acquired a large customer base” writes Chengwei Liu.
So how does one apply contrarian thinking in practice ? First put on your conventional thinking hat and see what you come up with. Then switch to your contrarian cap. Contrarian thinking would be to, for instance, avoid the dominate logic and look out for contradictions.
Cast a wide net for ideas and leverage the wisdom of the crowd. Be alert to the risk of stereotyping and notice bright ideas, often come from unusual unexpected places. Remember, it’s the learners who will win, in the strange game we call: business.
David is a director at aCatalyst Consulting. Email: [email protected]
