Warren Buffett once said that when used appropriately, the stock market is ultimately a financial instrument that transfers wealth from the impatient to the patient. Investment should always be treated as a long-term financial strategy. There is no room for any get rich quick strategic thinking when it comes to investment. That is unless your strategy is to lose all of your money as quickly as possible. Investment should always be initiated with intensive prior research and focused strategy. A strategy is a key- so what if the contrarian investing strategy is right for you?
The Contrarian Investing Strategy
So, what is the contrarian investment strategy?
Contrarian investing strategy is the practice of initiating investments against current stock market dynamics to make money.
Have you ever had a contrarian argument with someone who said “no,” when you said “yes,” or “yes,” when you said, “no?”
It’s almost the same concept.
Contrarian investing strategy requires you as an investor to research and look for distressed investment opportunities instead of focusing on the “hot,” trends of the moment.
If most of the market is selling and suddenly becomes bearish, contrarian investing strategy behooves you to become bullish.
In other words, when most investors are buying, the contrarian investor sells and then vice-versa.
You shouldn’t just contrarily invest for its own sake. Understand market conditions and why a herd investment mentality has taken the market in direction.
Then, use the contrarian investing strategy to systematically invest against current market sentiments that financially benefit you.
The contrarian investment strategy requires looking beyond the stock market news and not take what so-called “experts,” say about the situation.
As an investor, you must believe that the herd or lemming mentality is occurring for an underlying reason. So, you want to stand out and find what everyone else is missing that is valuable but unnoticed in the herd scramble to follow the market.
Is the contrarian investing strategy the right one for you? If you are new to investing, you shouldn’t utilize it for its own sake.
In fact, if you are new to investing, you should spend a lot of time learning about the stock market system before you start employing the contrarian investing strategy.
The Novice American Investor
If there thing Americans need to learn more about, it’s the stock market.
Many Americans are ignorant of the basic stock market operating metrics, don’t have enough money to invest, or contrarily distrust financial experts to their own financial detriment.
About half of Americans don’t understand how the stock market works.
Most Americans don’t understand what a bond investment is or that it is the least risky type of investment.
Over 52% of Americans with a diversified stock portfolio don’t know how to maintain it properly. Many incur massive fee and tax penalties because they rebalance their portfolios more than once a year.
About 42% of Americans with a diversified stock portfolio have no clue how their financial assets are allocated or in what amounts.
Only about 55% of Americans are financially invested in the stock market. However, less than half of that estimate has only invested less than $40,000 in the stock market. Depending on their portfolio, or individual investments, that may not be enough to ensure a return on investment.
Over 53% of Americans don’t have enough capital to invest feasibly.
Worse, there is a large number of Americans who just don’t trust the idea of investing. 21% of Americans don’t trust financial advisors, stockbrokers, or experts.
So, personal experience with finances, and a lot of financial illiteracy, create a situation where ambitious novice investors start out making bad investment decisions.
Value Investing
If you are new to investing, you might want to start out with other strategies before graduating to the contrarian investing strategy.
You may perhaps want to start with value investing.
Value investing has some similarities with the contrarian investing strategy. Both encourage investors to seek out unappreciated stocks with value ignored by the majority of investors.
But while the contrarian investment strategy focuses on paying attention to the herd investor mentality, value investing focuses on strategically looking for ignored stocks with value.
The value investor first self-invests in study, heavy research, and studying stocks of interest ignored by the market at large which may have unrealized value.
Contrarian Investing Strategy
The contrarian investing strategy is a complicated way of utilizing stock investments. You must understand how the stock market works, how the majority of investors are investing, and why.
Start by learning more about investment and the stock market before you attempt.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.