Rigorous research, ruthless selection

Being a contrarian investor means going against consensus and that can be testing. This difficulty is why contrarian investing can work, but to endure it, you need to really understand what you own. In this article from our sister company, Orbis discusses its rigorous, contrarian investment philosophy and how this is applied to the Orbis Global Equity Fund. This article was originally published on 28 February 2025. 

Last month we discussed the outstanding returns of the US stockmarket over the last 15 years, what drove that performance, and what investors need to believe to expect similarly stellar returns in the future. That analysis leaves us sceptical that the US market is poised for attractive long-term returns today. As the US represents some 70% of world stockmarket indices, that leaves us similarly sceptical about the long-term returns on offer from global passive portfolios.

In addition, there are signs of speculative enthusiasm. Valuations are high, and stockmarkets are concentrated in both composition and performance. Froth in cryptocurrencies is alive and well. Investors able to hold cash don’t hold much of it. Parallels with past speculative periods, like the Nifty Fifty era in the early 1970s or the technology bubble in the late 1990s, are starting to pop up more often.

Yet we don’t see an obvious stockmarket bubble, nor an inevitable stockmarket crash. Unlike the tech bubble, the leading stocks today are real companies, and really good ones. Why, then, would we not hold more of the market juggernauts, or have a larger exposure to their thriving home market?

Put simply, because we think we can find much better opportunities from today’s starting point, and we try very, very hard to find the best ideas we can.

Some of those ideas are the juggernauts. We have owned Alphabet for years. Some of our stockpickers find Microsoft and Amazon attractive, and Meta looks reasonable enough to warrant some work. On the other hand, Tesla’s share price is a hype-driven rollercoaster with little regard for its fundamentals.

We scratch our heads at Apple’s ever-rising valuation for ever-slower growth. And Nvidia, which three different Orbis analysts have looked at over the past two years, seems to us an excellent business—but one with exceptionally high expectations reflected in its share price.

Most of our best ideas, however, are not the stocks you see in headlines. As the process graphic below shows, our bar is high.

Last year our analysts around the world looked at 395 companies. From there, ideas run the gauntlet of our phased research process. Being a contrarian investor means disagreeing with the market, and that is testing. Challenging voices vastly outnumber supportive ones. This difficulty is why contrarian investing can work. But to endure it, you need to really understand what you own. Building that understanding requires time, and finding that time requires focus. Accordingly, we encourage our analysts to be ruthless in rejecting all but their most compelling ideas. Of the 395 companies that we analysed last year, only a fifth were considered for purchase in the Orbis Strategies. Those 81 ideas were then picked apart at thesis defence meetings, where we interrogate the analyst’s investment thesis to reduce the risk of making mistakes. Only 14 companies were ultimately bought as significant new positions in our Global Equity Strategy.

We turn over hundreds of ideas, but less than 4% are compelling enough to beat out the companies the portfolio already holds. The bar ideas must clear is not “average”, or “reasonable”, or “fair”—we are looking for the most attractive opportunities we can find, anywhere in the world. Every day, our work continues.

Financial advisers can contact their local Business Development Manager to learn more about the Orbis funds.

This presentation has been designed for institutional/professional investors or professional advisers. It is not suitable for a direct retail audience.

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