When Kenyan markets falter, there’s always a familiar refrain: “Just buy the dip.” The idea is compelling, acquire beaten-down shares in the hope that they rebound. At its core lies the contrarian playbook: go against the grain when everyone else is selling. Globally, this has made sense in historical studies buyers of lagging stocks sometimes outperform winners over multi-year horizons. But not all “dips” are equal, and not every investor is psychologically wired to weather the volatility that follows.
In the Nairobi Securities Exchange (NSE), contrarianism manifests in varied forms. The most basic is what we might call knee-jerk contrarianism. You buy shares simply because they’re down. But this strategy risks catching a falling knife: a stock that’s sinking in price often does so for reasons; weak business models, regulatory headwinds, or distress, that won’t resolve quickly. Buying Mumias Sugar Company before its collapse, or trying to catch Uchumi Supermarkets during its repeated recapitalization phases, would have tested even the strongest nerves.
A more refined approach is technical contrarianism. In Kenya, savvy investors might watch stock‑to‑volume ratios on the NSE, or market sentiment signals tied to East African regional macroeconomic events, like changes in central-bank policy or currency pressures. Such indicators, like spikes in the VIX, can hint that fear has peaked, perhaps signaling a buy opportunity. Locally, patterns such as sustained overselling in banking stocks during currency-related stress can present a contrarian technical setup.
Yet, even a price chart isn’t enough. That’s where constrained contrarianism comes in, rooted in value investing. In Nairobi, arbitrarily choosing the lowest‑priced stock is risky. A better path is to screen for shares that have fallen 20.0%–30.0%, but still exhibit strong fundamentals: stable dividend yields, robust return on equity, and manageable debt ratios. Think of a firm like Kenya Power, which at times has traded cheaper than justified by underlying cash flows, or Safaricom during intermittent profit scares. This blend of low valuation and quality screens aims to avoid value traps, companies that look undervalued but continue to crater. In Kenya, a share may look cheap after weak macroeconomic data hits, but those companies that pass quality checks, strong cash flows, good governance, positive dividend history, stand a better chance of recovery.
Finally, there’s opportunistic contrarianism. This strategy begins pre‑crisis, identifying high‑quality businesses that you admire but couldn’t afford at previous valuations. Perhaps a well‑run agribusiness or commissioner‑fashioned real estate firm in Nairobi. When market-wide fear sets in, and even these blue‑chips dip, long-term investors with conviction can enter. But don’t assume your old valuation holds. Reassess expected cash flows and discount rates in light of new risks. If the updated intrinsic value still exceeds the new price, consider buying in.
So, is contrarian investing worth it? It can be, but only for those who match the strategy to their personality and resources. Knee‑jerk buying rarely works. Technical indicators add some structure. Value screens help avoid traps. And opportunistic buying breathes intentionality into each purchase. But above all, it takes discipline and conviction. In Kenya, where market corrections tend to be less frequent but sharper when they happen, contrarianism can work, but only when you understand which dip to buy, why you’re doing it, and can hold through the storm. If you can do that, buying the dip isn’t foolish; it can be profoundly rewarding.
