John Maynard Keynes was fond of referring to the stock market as a beauty contest. In trying to pick stocks that will do the best, investors commonly try to pick those equities that, in their opinion, look the most attractive to others. This sort of mindset, according to Keynes, results in the trade of herd behavior that results in extremely crowded trades.
A recent Wall Street Journal article shows that an opposite approach where the most unattractive stocks are selected have actually done better. This makes some sense, as the most sought after positions are the most expensive from a valuation standpoint. Meanwhile, the forgotten bottom tier can represent compelling valuations.
