“Contrarian Strategy - How to be an Intelligent Investor”

Legendary Investors has talked about this on many occasions, That the stocks become more risky when prices are high and less risky when prices are low. This we know is also true for all our purchases. Goods and services are less attractive when prices are high and more attractive when prices are low. However while investing in equity markets we sell our stocks when prices are falling (Low) and when they are rising we feel safe to invest.

Investing is a strange business. It’s the only one we know of where the more expensive the product gets, the more customers want to buy them.

Another thing is that and individual considers someone a speculator if that person was to invest in the equity markets after they have fallen massively. Same individual will treat someone as an investor when that person invests into equity markets after they have risen sharply. What is more speculative in nature – to invest at low levels or high levels?

Since it is difficult to see future, we take shelter in past to predict future. It is like driving a car by seeing only rear mirror, which shows the road we have already traveled. The reason we consider an investor speculator when he invests after market have fallen is because we are referring our judgment on past events. The same is true when we refer to someone as an investor after markets have risen. However we all know that “past performance may or may not be repeated” – To drive ahead we need to look in front and not in rear view mirror. It is common sense that to earn good returns we need to buy low and sell high. This also means sailing against the tide. Buy when everyone is selling and sell when everyone is buying. This strategy is called as CONTRARIAN STRATERGY.

It takes patience, discipline and courage to follow the contrarian route to investment success because as human beings we prefer being with the crowds. We are not comfortable being seen opposite the crowd. When we are on the opposite side of the crowd whole world can see us. We feel that if we make a mistake then crowd will laugh at us. On the other hand if we are with the crowd and even if our strategy goes wrong nobody will laugh as everybody would have gone wrong.

At the end Elders has said to us that “Individuals who cannot master their emotions are ill-suited to profit from the investment process”.



KUNAL BHASIN