“To succeed as a contrarian you must recognize what the crowd believes, have concrete justification for why the majority is wrong, and have the patience and conviction to stick with what is, by definition, an unpopular bet.” -Whitney Tilson
Contrarian investing is a rather commonplace strategy in the marketplace. Simply put, contrarians look to buy when others sell, and sell when others buy; Going against the crowds. They invest contrary to market trends and opinions, looking for the sweet spots to buy and sell. Usually selling high and buying low. Being bears in a bull market and bulls amongst bears.
Going Against The Crowd With Knowledge
The herd mentality in investing is too often seen, and builds the concept of contrarian practices. Buy-ins happen when value is noticed, causing many to buy at a higher price. Sell-offs are seen in times of bad news or value loss, causing some to fearfully sell at a lower price than they paid for. Trends rise and eventually dip, just as those who are low can one day gain popularity and rise. Contrarian investing is a strategy of timing, confidence and diligent research to back the decision.
The contrarian sees value where the majority would not (usually because of slower growth or lower price values), and sees a dip on the horizon as the crowd runs to get their piece of the pie. It’s wise to keep in mind certain habits when it comes to investing this way. One must always do their own research, not taking into account what everyone else sees, but more. The hidden variables. Things others may not see or care to look at. It’s also good to be ahead of the game when it comes to market news, always looking ahead for the value loss or gain to come. Looking ahead and having one’s own opinion can give much comfort in making a contrary investment.
Buffet’s Blessing
As a master value investor, Warren Buffet similarly practices contrarian investing. Looking against the crowd. Finding opportunity in a company that has lost value, or simply never had it, because of popular opinion, or the lack thereof. Or noticing when the company has run its course, suffers, or encounters its seasonal demise (depending on the investment). There is much to be gained in taking long-term buying decisions and knowing the right time to get out of something.
Not Financial Advice, But…
This strategy is one which is rather simple, but can be tricky to time. Some sell high, when investment volume skyrockets, only to see the value go higher. Likewise, others buy the dips, only to see the dip dive deeper. As we continue to emphasize, research is to most, if not, all strategies vital. The pros practice it, and see gain in both buying and selling. Always look to make the most of your portfolio. Look ahead, look at the present moment, But always look at as much as you can. The little things matter in the economic world. Thanks for reading!
