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We all know contrarians. They are the people who see what the masses are doing and do the opposite. When most people suggest one way of getting to a destination, they will head toward a different route and often get there sooner with less hassle. It can sometimes be frustrating dealing with a contrarian because they will rarely ever validate or agree absolutely. However, contrarians are freethinkers who often end up with a successful plan because they are open to new alternative ideas and come up with strategies that are appropriate for different circumstances.
The contrarian investing philosophy can be appropriate for investing because successful investments often depend on seeing what others do not. The stock market, in a sense, is inherently geared towards contrarian investing, because you can buy low and sell high if you are thinking like everyone else. Some people say “the trend” is your friend and warn against getting out of bull markets too quickly, while others encourage constant skepticism. There is some truth behind both of these approaches, but one should avoid slavish devotion to any particular philosophy. While the herd tends to follow popular trends, knee-jerk rejections against the trend doesn’t necessarily mean you’re a contrarian investor.
Individualism and Investing
Contrarian investing involves doing your own research and making independent decisions. You can benefit from the investment thesis of other people as long as you avoid the noise and can ferret out the information you need. You want to avoid staying in an investment for too long and getting out of it too early, and this involves paying close to attention to what is actually going on with the investment and not allowing yourself to be distracted by what others say about it.
A contrarian investor does research, gathers information and draws his or her own conclusions. These conclusions should be flexible and adjust with new data as it arises. People who adhere to the opinions of the crowd, whether the crowd is bullish or bearish, usually want to take the automatic pilot approach to investing. Contrarian investors reject being carried along on any kind of investment wave but are always collecting information, analyzing and making their own decisions.
Some Principles of Contrarian Investing
While contrarian investors do not commit themselves absolutely to any one investment philosophy, there are some general principles they tend to follow when looking at market trends. There are many people who buy and sell stocks based on the headlines, but contrarian investors note that once the media has picked up on an investment story, it’s already too late. The expression, “What a difference a day makes” sums up the truth in the investment world. By the time something is been written about, investors have often done the buying and selling.
Contrarians are not quick to blindly take stock tips and follow “expert” advice. Whether they are individuals or hedge fund managers, they are always refining their own fresh ideas and approaches to investing. Many people read books to understand the principles of contrarian investing, such as Fisher investments Beat the Crowd, or they read articles online to help understand the contrarian concepts.
There are many resources that can help people start investing on their own, but many investors rely on fund managers to make these decisions. The advantage of using the services of a fund manager is that he or she is devoted full-time to spotting trends where they happen and can make rapid decisions that maximize returns.
Be a Contrarian or Work with One
If you’re committed to investing, you will face the choice of whether to manage your own portfolio or entrust it to a fund manager.. Since contrarians need to do their own research and stay ahead of market trends, you need to be honest about how much time you can spend managing your own investments. Many people are busy with other responsibilities and may find it difficult to manage their own portfolios. This is where selecting the right fund manager comes into play and working with someone who is informed and can make the right decisions.
Whether you decide to embark on contrarian investing alone or are looking for a fund manager with the contrarian philosophy, it is helpful to study market trends and get an idea of what factors affect the direction of stocks. This will help you stay ahead of the herd and see where the momentum is going.
