Why Contrarian Investing Works

 Why Contrarian Investing Works

 

            Are you a contrarian? The answer you are ever going to give is Yes. Nobody wants to invest with the blindly following crowd.

 

Most other investments are well-defined. Growth investors pricey looking companies that are growing quickly. Value investors hunt for cheap stocks. Momentum investors buy stuff that has already gone up. But what do contrarian investors do? They have not just bet against the market. They "buy when there's blood on the street". They "buy what everyone else hates" They "zig when the market zags". Contrarians do all of these things. 

 

The basic problem with doing the opposite of what the market is doing is that sometimes the market gets things right. Not all contrarians are the same. Some buy unidentified value stocks and hang on a long time patiently for the share price to recover. Others make big timely bets against the bubbles. Or not getting sucked into them. Some contrarian stick to take advantage of cyclical stocks after in-depth investigation. Buying in the downturn and selling when the good times roll around. The way of thinking patterns of contrarians is quite different. They understand that things change. They understand that market makes mistakes cause it reflects the emotions of the crowd. So-called contrarian investing is a mindset rather than a specific strategy. Contrarian investors are always questioning assumption of both the market and their own. They don’t take anything for granted. 

 

That sounds very simple. But in practice, it’s very difficult to swim against the crowd. It’s emotionally challenging at the beginning. If you want to be a contrarian investor first you should know to control your emotions and you must analyze to get to know whatever you are going to do. And most importantly you have to think critically to take advantage of the market. A market is nothing more than an information processing machine. Contrarian investing is one of the best ways to look at investing, regardless of the active or passive you want to be. 

 

Examples of Contrarian Investors

 

        The most prominent example of a contrarian investor is Warren Buffet. "Be fearful when others are greedy, and greedy when others are fearful" is one of his most famous quotes and sums up his approach to contrarian investing.

 

Michael Bury a hedge fund owner, is another example of a contrarian investor. Through his research in 2005, Burry determined that the subprime market was mispriced and overheated. His hedge fund Scion Capital shorted the riskiest parts of the subprime mortgage market and profited from them. His story was written up into a book and a movie.