Many people talk about contrarian investing, but the fact is that most investments are inherently contrarian. For example, you don’t want to buy stocks when everyone else is buying them or sell them when everyone else is selling them.
Whether you are investing in stocks, real estate or precious metals, the idea is not to do what the “herd” is doing at that particular moment. You may be focused on trying to expect a new trend with an original investment idea or staying in a bull market when others are suggesting an exit, but the point is the same – never simply go along with the crowd.
Making Your Own Decisions
Contrarian investing isn’t just simply doing the opposite of the prevailing trend—people who engage in knee-jerk reactions that are the opposite of the conventional wisdom just to be opposite.
True contrarian investing involves avoiding falling into this trap, or any other type of trap. You can think of contrarian investing as another way of suggesting that an investor conducts individual research and make independent decisions.
There are many reasons to avoid jumping onto a particular trend. If everyone knows a certain investment thesis, there is very little upside left.
It may be worthwhile to invest in something even if the story is out, because you may feel it is possible to at least gain something, but it may be a better use of your time and resources to look for a story that is not already out there.
This may involve a certain amount of risk, but it may not be as risky as counting on an already popular idea to continue making money.
What you are betting on is that the bull market will last sufficient time to give you a satisfying return on your investment.
The contrarian approach involves constantly gathering information about particular investments and the market in general. Successful investors are informed about specific investments and approaches to investing and read books and websites that will provide the information needed.
However, it is important not to become too dependent on the ideas of others, because what works in one situation, may not be the best approach to your portfolio.
Tips on Contrarian Investing
Contrarian investing is not simply nay-saying a prevailing investment idea – it involves digging down and finding the facts.
While many people trade based on headlines, a sharp contrarian investor may believe that once the information is trending, it is already too late to invest. People who make careers out of investments understand financial cycles and may not bother trading based on headlines.p>
Contrarian investors are focused on coming up with truly original investment ideas—the more original an idea is, the more likely its success.
Much of the experience gained by contrarian investors is through trial and error, and there are likely to be a number of failures before one succeeds.
In addition, a contrarian investor needs to dedicate time to focus on gathering information for new investment ideas.
People who work full-time and non-financial career may not have the extra time to research the market, this is where it may be a good idea to enlist the services of a fund manager who takes a contrarian approach and makes his or her own decisions about the market.
Having a seasoned contrarian investor manage your portfolio may help you create significant returns because knowledge is power and wealth when it comes to investment.
It is advisable to do significant research before selecting a fund manager who has your financial goals in mind.
Contrarian investing involves the art of making your own decisions based on available information.It is not simply going against the grain for the sake of doing something different, but making bold, well-informed decisions to maximize your investment potential.
Whether you undertake investments on your own or enlist the services of a financial professional manager, it is useful to become familiar with the core principles of contrarian investing and how filtering out the “noise”may help you beat the market.