Contrarian
Candlefocus EditorIt should be noted that contrarian investing is not simply buying assets when they are undervalued or sold cheaply. That would just be value investing. Rather, contrarian investing requires the investor to assess the underlying value of an asset, to compare it to the current market price, and then to decide if the current price is lower than the underlying value. If so, then the investor could buy the asset and wait until the market price eventually catches up with the underlying value.
Contrarian investors are always looking for inefficiencies in the market, as these represent opportunities for profit. They must be particularly patient as it can take time for the markets to catch up to their views. The idea is to buy assets when most of the market still views them as undervalued, and then hold onto them in anticipation of the market price eventually rising to match the underlying value. Unfortunately, no one can predict with certainty when this will happen so a consistent and disciplined approach is needed.
The disadvantage of being a contrarian investor is that it is a very risky strategy. It requires a great deal of research and analysis and often a high degree of knowledge and experience before entering a trade, and many of these investments may not pay off in the end. It is also challenging to remain an independent thinker in a market full of day traders and other investors that are driven by fear, greed, and the momentum of the current trend.
In summary, contrarian investing can be a lucrative strategy for those who can successfully separate themselves from the herd and focus on fundamentals. It is not for the faint of heart and requires a great deal of research and analysis, but it can be highly rewarding when done correctly. Those who chose this path must be diligent in their actions, remain patient, and rely on their deep knowledge and understanding of the markets.